Nedgroup Investments’ Best of Breed philosophy means that they spend an inordinate amount of time looking for the best portfolio managers in each asset class or across strategies ensuring that their funds are run by superior managers consistently. This process has led them to recently appoint US based The Killen Group as new managers for the Nedgroup Investments Global Cautious Fund. The new appointee has a stellar track record spanning 30 years managing global multi-asset class portfolios and will definitely be welcomed into the Best of Breed stable to continue delivering to investor expectations. Listen to Candice Paine speaking to Matthew de Wet around the manager change and who should invest in this fund.
This podcast is brought to you by Nedgroup Investments and I’m sitting in the Cape Town offices of Matthew de Wet, who is Head of Investments at Nedgroup. There recently has been a change in one of the Nedgroup Funds – the Nedgroup Investment Global Cautious Fund where a new manager has been appointed to run this fund. Matthew, tell us a little bit about the fund and why the change of manager.
Hi, Candice. The fund is a Global Cautious Fund, which aims to deliver returns well in excess of cash over a three-year cycle, so the target return is cash plus three. It’s a very conservatively managed fund. It has a maximum equity allocation of 30 percent and is really intended for those investors as an alternative for leaving cash in the bank account, which is pretty much earning zero percent offshore at the moment.
We’re talking about USD now.
Correct.
USD cash plus three percent; so you have the benefit of Rand appreciation if you are in a feeder fund and a South African investor.
That’s correct.
Tell us a little bit around why the move from JP Morgan Asset Management, who has been running the fund for quite some time, to the new manager that you’ve discovered.
Sure. JP Morgan has done a really good job on this fund and we do rate them highly, but we’re always on the lookout for exceptional managers. This particular search took us a very long time. It actually took us about three or four years to establish this relationship with Killen, but we just believe that they are really well suited to managing a mandate like this. Their whole business is structured around these cautious mandates. In fact, 80 percent of the assets that they run are according to this kind of mandate. They’ve been doing it for over 25 years. They’ve produced a really good track record and they understand risk very well. On top of that, they are a smallish, owner-managed boutique, which is the kind of structure that we really like because we believe that just ensures that over the long term, the same people keep doing the same thing.
In making the choice to give the fund management to the Killen Group, I expect that you spent a lot of time with the managers. Do you want to speak a little bit more deeply around their investment philosophy, especially given that a large portion of this fund is actually in fixed interest assets?
I think that what the Killen Group try and do with this mandate is to create a portfolio of income generating assets and within that definition, we include equities that pay a dividend yield. What is interesting though is that their investment process is not broken up into different buckets, so they don’t have different analysts looking at fixed income and different analysts looking at equity. They effectively all look right across the capital structure, which we think is a competitive advantage that they have because they can compare different issues in the capital structure and assess their relative attractiveness. What they do try and do is they don’t just try and look for yield. For example, if they are invested in the high yield or the investment grade space, they are actually looking for capital appreciation plus yield, so it’s truly a total return approach. We think they’re very good risk managers because they do a lot of work around valuation and they’re relatively small, so they can be quite flexible and they can actually get exposure to a lot of the smaller issuances that some of the large managers wouldn’t be able to access.
Let’s talk about that size because one of the things that stood out about the Killen Group is that a while ago, they actually closed some of their funds to new investments to protect the interests of current investors. This Global Cautious Fund, currently, is not of a large size but I’m sure that you’re going to promote it quite actively now that you’ve found the perfect manager for it. What amounts of money can Killen take in?
It was an interesting move of theirs to close that fund because as you mentioned, they were quite small at the time. They had just  been through a very good performance run and there was a lot of investor interest. They just felt that there weren’t sufficient opportunities in the market to deploy the assets that were coming in the door and to protect existing investors, so they decided to close the fund for a period. We actually see that as a hugely positive sign because it means that they’re more concerned with producing the performance than they are with raising assets and therefore, profitability. At the moment, they are finding plenty of opportunities but typically, what we agree with our manager is if they feel it necessary to close the fund to protect existing investors, we will allow them to do that.
Okay. What type of investor would be looking to invest in a Global Cautious Fund?
I think the fund’s suitable for a number of different kinds of investors. The most obvious would be those investors sitting in cash, earning close to zero. This fund offers the potential to materially outperform cash without taking on significantly more risk and we think it’s a valuable proposition in that space because a lot of that money sitting in cash is actually there for the long term. It’s not a short-term parking bay. Potentially, investors who are fearful of the level of the market at the moment, but do want some exposure to assets that can protect their real wealth – it could be suitable for them – or those investors who have previously invested in other low-risk products that haven’t delivered on expectations.
Oftentimes, when a manager changes in a fund, it’s seen as a ‘sell’ signal. This is slightly different because of the ‘best of breed’ philosophy. What advice would you give to existing and new investors right now, either in the fund or contemplating going into this fund?
I think it’s a good question. Clearly, this is a deliberate move on our part and it’s a move that our investors empower us to make by investing in a ‘best of breed’ fund. We spent the last three years combing the planet – literally – for a great manager for this fund, and we’re hugely excited by what we’ve come up with, so we see this very much as a positive change. The benchmark hasn’t changed. We just believe that the new manager is very well placed to deliver on that benchmark, going forward. Our advice to existing investors would be ‘if the fund and the benchmark remain relevant to you, please stay invested’. We’ll also be taking it out to try and tell the story to potential new investors.
Great. That’s the Nedgroup Investment Global Cautious Fund and we’ve been chatting to Matthew de Wet. Matthew, thanks so much for your time. This podcast is brought to you by Nedgroup Investments.
