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Corion director Garreth Montano explains in this interview how an idea to tap into the best ideas of four free-thinking asset managers is working out. The Prime Concentrated Equity Fund combines between four and eight stock picks by four money managers, with Corion adding a few balancing stocks of its own. Two years since launching, the highly focused fund significantly outperformed its benchmark, leaving “Flock Stocks” in the dust. Montano spoke to Alec Hogg of BizNews.
Excerpts from the full audio discussion with Corion’s Garreth Montano
Garreth Montano on the Corion Prime Concentrated Equity Fund and it being the antidote to flock stocks or active management
In Corion Prime Concentrated Equity, what we’ve tried to design is a portfolio with high conviction positions and ideas. So when a manager, you know, strongly believes in a stock, it gets reflected in the positions and our client is exposed to these calls. What we’ve managed to do and how we’ve managed to construct this portfolio is that Corion’s got a much bigger role in the portfolio construction. We still very much rely on these managers who’ve got great skill in selecting stocks. But what we actually do is, instead of investing in these other managers’ funds, we say to the managers, please give us your best 4 to 8 ideas. We don’t want to invest in your whole product portfolio. We want to invest in your best 4 to 8 ideas that you believe are going to outperform and then Corion constructs the portfolio. So really we believe we are developing a solution with diversification, which is central to Corion’s investment philosophy. We don’t believe that a single manager is going to perform in all markets all the time. So we get exposure to multiple managers, but then you’re getting access to the best ideas and getting appropriate weighting in the portfolio. And we also deliver the solution at a similar cost to what you would get as if you’re investing in a single manager fund.
On the biggest stocks currently being held in the fund and how’s it been going
The fund hasn’t been going for that long; coming up at the end of this month, our two year anniversary. And we think the fund’s got off to a really good start over the last year. It’s up around 10.7% when the benchmark, which is the capped swix, has been up about 3.7% and the two year number is really strong. It was one of those where market conditions were very friendly at the timing of the launch. So we don’t expect that to continue those types of return numbers. But it had a really strong start in terms of holdings. We’ve got, I believe, a really good mix between large cap stocks as well as more of the undiscovered, uncovered mid and small cap stocks. But as it stands right now, the biggest holding in the portfolio is Prosus. And it’s been one of the top performers this year. It was actually the sticks, one of the sticks picked. So although you’re talking about something that has dominated discussions over the last decade in terms of it being too big in the context of the South African equity market, it goes to show that these managers are not only going to pick small and mid-cap stocks, they’re going to go where they see value in the market and process afterwards. And Prosus and Tencent and Naspers after the big selloff, they believe in value and it’s been a great contributor to returns and is still one of the bigger holdings in the fund.
We’ve got Old Mutual as one of the bigger holdings; MTN is one of the bigger holdings, you know obviously household names and then and then moving a bit beyond the spectrum to the likes of a Thungela, which we’ve recently discussed in BizNews also, which has been a stellar performer. And then, you know, one of the ones which I thought we’d touch on and speak of is one of the great surface picks, which is a company called Assupol. Now, some people may or may not know that Assupol is a very well-established insurance business in South Africa. What is really interesting about Assupol, it’s listed on the Cape Town Stock Exchange and not the Johannesburg Stock Exchange, but it’s by no means not a meaningful business. It’s got a three and a half billion rand market cap. But because it’s listed on the Cape Town Stock Exchange, it’s definitely not going to appear in ordinary equity funds. And the business has obviously come through a difficult time, as with most insurers through the Covid-19 period, but is trading at a 45% discount. It’s embedded value, which is a common valuation metric for insurance companies. And if you compare that to insurance companies, you know, the more household names listed on the JSE, they’re trading at 20%. So valuations are very compelling.
On what kind of investor would find this appealing
I think it’s very important to note that this is an aggressive equity fund, you know, just by the mere concentration. In fact, this is a fund that is designed to take on risk. And we think that it’s got a specific place because with passive becoming more ubiquitous, people understand passive in a portfolio. You’ve got multiple indices or multiple markets and teams available at a cheap price. This product is designed specifically to be a bit more on the aggressive spectrum and to be a part of anyone’s investment portfolio. We would not advocate that you’re going to be putting all your assets into a concentrated equity, but we believe that concentrated equity is a solution that should form part of portfolios, because when you’ve got your your more passive core, even managers running a bit less of a tracking era to have something that is that is taking on this type of risk, gives investors a legitimate chance to outperform markets and a legitimate chance to outperform peers. It is active in what we believe is a very pure form.
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