Corion’s ‘best ideas’ money managers beating market, Vintcent adds Kaap Agri to outperforming portfolio

Innovative Corion Prime Equity unit trust keeps delivering the goods with the fund and the best ideas of its four external fund managers, comfortably beating their benchmark this year. Corion’s hand-picked money managers remain bullish about South African shares, believing them to have fully discounted all of the bad news enveloping the SA economy right now. In this fascinating interview, Corion’s Garreth Montano also explains why top money manager Andrew Vintcent has added Kaap Agri to his half dozen ‘best ideas’ shares – news sure to trigger deeper investigation by those looking to ride on this highly regarded stock picker’s coattails. Montano spoke to Alec Hogg of

Excerpts from the interview with Corion Capital’s Director Garreth Montano

Garreth Montano on what’s happened to the Corion Prime Concentrated Equity Fund

Yeah. So, I mean, a massive rebound in October. And, you know, we were happy with the performance of the fund. It kept pace with the market and with a concentrated high conviction fund like that. You know, sometimes when markets and you have a quite a broad rally, it can happen that it underperforms. But fortunately the balance of, you know, we’ve discussed before the Optimiser portion which Corion manages, you know, contributed as well as our managers picks have been good. So it was a good month overall for the performance market, still muted from a South African perspective. The capped swix is still down for the year. Our fund is positive, but we’re very happy with the way it’s playing out.

On what is concentrated equity and the optimiser

So what we’ve done is we’ve taken four managers and we’ve asked them to give us their best 4 to 6 ideas. We then construct the portfolio using those positions. So what the investor is getting is exposure to the manager’s best ideas. So we’re not investing in their fund. Often when you construct a multi-manager portfolio, you invest in someone’s fund. Here we invest in the best possible ideas. We are still getting diversification, which Corion believes in. A key part of our investment thesis is that not all managers are going to perform in all markets all of the time. So we’re getting a blend of different managers, but we’re getting their best ideas. And then the optimiser sits side by side, really to build a bit of robustness to the portfolio to make sure that the portfolio isn’t missing out on any specific bets. So if our four managers do not have Sasol, which they didn’t have, I’ve used this as an example. Before, the optimiser would put an oil and gas pick, being Sasol, into the market. If they didn’t have a telecoms pick, it would put either Vodacom or an empty into the market. So the optimiser is there to build that resilience into the portfolio to make sure that the concentrated bets are tempered slightly. We’re not looking to change the spirit of the fund. The spirit of the fund is to outperform its high conviction and we want to outperform peers as well as the market.

On what happened in the last two months and whether any of the managers changed position

Yes, we’ve had quite a lot of change. So with the volatile market comes opportunity and a lot of ideas have played out, and new ideas have also come to the fore. So they actually have been probably higher than normal turnover in the portfolio. This isn’t a high turnover portfolio. You expect it like most equity portfolios, positions, you know, we always speak to clients and discuss what’s your outlook if you’re investing in an equity fund. Typically, you want a minimum of 3 to 5 years outlook. So that’s what an equity portfolio would look like and therefore underlying positions would also have that type of timeframe associated. But volatile markets, you’ve seen the types of moves we’ve been having. You know, you’ve got shares going up. The Dow is up 14% in October. I mean just the broader index. So when you put those types of moves in markets, individual shares can give you a big opportunity. There has probably been a higher than normal position changing and and there’s also some new positions. We’ve got a new position that I’d like to discuss that’s coming into the portfolio from one of the managers. But we’ve had some good, good positions, profits captured. Also, you asked how our optimiser did relative to our managers? The optimiser is lagging our managers quite significantly. 

On some of those changes and the exciting new positions

Thungela was a share that we’ve spoken about. Thungela has had its position trimmed back. It hasn’t been cut totally and well, actually, when it dropped back to the 260 level, there was also a big dividend that went ex-dividend 60 end. But I think ex-dividend it was trading at around 350, but it said drop 50 under shares, significant move. One of the other managers picked that up. So there’s been a bit of movement around together. You know, we’ve had a new entrant coming into the portfolio with Kaap agri – another interesting pick from Andrew Vincent and you know it’s a share. Andrew highlights some key metrics which resonated with us. First of all, a strong track record of delivery from management. You know, they’ve been delivering 15% compound annual growth in earnings for a long period of time now, over ten years that Andrew has been monitoring the company and there was a corporate action where there were shares coming into the market, which we think put undue pressure on the share price itself. So it’s created an opportunity, bringing the share back to really compelling valuations, single, single digit PEs with a company that grows earnings at 15% compounded annually. It’s in quite a sweet spot we think in the South African context, as the name would suggest. It’s not only an agri business, it’s more of a retail business with drivers from the agri market. So, you know, they’ve just concluded a transaction buying the PEG group, which has 41 retail stores with petrol. So essentially like the Quick Shop petrol concept and you know, earnings still seem to be there. So Andrew’s highlighted that as a potential new entrant into the portfolio. 

On those two months against the capped swix, what is the benchmark and how has the portfolio performed?

Last month it kept pace. So I think the capped swix ended up 4.9%. We were up four and a half percent. If we look over three, the three last three month periods capped swix down, I think one and a half and up two and a half. So there’s still outperformance which we’ve been very happy with since inception. The outperformance is quite strong, but that was I think, a lot of luck when we launched the portfolio. The portfolio has been running for just over two years now and that beginning period when we launched there was quite a strong move in the small to mid-cap space where we can invest.The longer term performance is a significant outperformance but in a very difficult environment. This year I think o date we also up around 2% with the market down around one also. So outperforming – nothing, you know, enormous, but in the context if you continually outperform by, you know, 1, 2, 3% every year, that adds up over a period of time. 

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