Behind the scenes with the fund analysts

Pretoria East December Newsletter 2021

Sometimes, however, the best move is not to make a move at all. Remember that, even when the impacts of decisions aren’t immediately visible, the research team is constantly busy behind the scenes, working to ensure that the portfolios achieve the goals set for them.

Research activities of fund managers

The PSG Wealth Fund Manager research team consists of seven dedicated fund analysts who focus on monitoring, managing and improving PSG Wealth Solutions. Daily activities behind-the-scenes include quantitative assessments, comparisons and reviews of funds and portfolios – using both internal and third-party systems. The portfolio managers also hold regular meetings, focusing on qualitative assessments of managers, people, processes and philosophies.

Since January 2021, the members of the research team jointly attended in excess of 500 fund manager meetings, presentations and review sessions. The majority of these meetings have taken the form of personal conversations with fund managers, either to obtain feedback on their current performance, ownership and prospects, or to assess new fund managers being considered for addition to the existing bank, for shortlisting, or for inclusion in the Fund of Funds (FoF).

The fund analysts prepare comprehensive monthly reports on their allocated fund sectors and they present these to both their fellow fund analysts and to the senior fund analysts. Each meeting includes a detailed analysis of each of the underlying fund managers in the portfolio, as well as of the peer group and the industry as a whole.

Fund committee meetings with the wealth managers – who have more than 200 years’ collective experience in the investment industry – are also held with the purpose of reviewing, discussing and monitoring the performance of the FoF.

Source: PSG Multi-Management, Morningstar Direct

Weekly research project meetings are held between senior analysts, the head of management research and the chief investment officer. Current research projects are reviewed at these meetings and the research calendar is compiled. Over and above a standard research calendar, there are ongoing ad-hoc research projects that are based on needs that are identified through the monitoring process, by management, or according to requests made by fund committee members or wealth advisors. Matters reviewed in these meetings include the reviewing of risky positions and the impact that these might potentially have on the FoF, specific portfolio characteristics (such as the balance between aggressive and defensive fund managers), existing bank funds and the overall portfolio positions of the FoF.

Active management of the FoF

While changes to the portfolios are not made every month, the portfolios are actively managed. Table 1, below, highlights the changes that have been made over the past 10-plus years in the local FoF. One way to review the success that a given process has achieved (including active decision-making within that process) is to analyse the successes of previous
decisions.

The table indicates how the FoF has been actively managed, and it shows the changes that have been made in response to research to improve the solution offered. While not every decision made by a fund manager turns out exactly as intended, our disciplined approach has resulted in a positive win-loss ratio of 77% on the local side (over more than 10 years) and 86% on the foreign side (over the last five-plus years).

Source: PSG Multi-Management, Morningstar Direct

Decisions made in the light of research are not always reflected in changes to portfolio composition

Research does not always lead to a fund manager being replaced. Indeed, some reviews have led to decisions being made to continue with existing fund managers who might be going through a period of underperformance. While such decisions do not result in any visible change, they remain active decisions – and decisions to stick with an existing fund manager have played just as important a role in the success of the solutions offered as have decisions that have led to change.

Thousands of available funds

At present, there are in excess of 1,400 unit trusts in the local unit trust landscape and about 85,000 funds available to investors. Specialist skills, knowledge and time are required to select the correct funds and to actively manage a portfolio. PSG Multi-Management is a business unit within PSG Wealth that has the specific mandate to add value for PSG customers by performing the necessary functions.

The opinions expressed in this document are the opinions of the writer and not necessarily those of PSG and do not constitute advice. Although the utmost care has been taken in the research and preparation of this document, no responsibility can be taken for actions taken on information in this newsletter.

PSG Wealth Financial Planning (Pty) Ltd is an authorised financial services provider. FSP 728.