Friday, January 21

The ‘very different’ equity fund that has risen 60% in one year


When Corion Capital launched a new actively managed equity fund 13 months ago, it wanted to do something “very different.”

‘What we’re trying to do with this portfolio is ask managers for their best investment ideas,’ Corion CIO David bacher saying Citywire South Africa In an interview. So we pay them for those ideas. Financing goes with investment ideas. It is not a fixed assignment to managers ”.

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The strategy has produced an excellent initial performance. The R43 million Corion Prime Concentrated Equity fund ranked ninth out of 194 funds in the Citywire South African equity category for the year ending October, with a return of 60.3%.

The fund also significantly outperformed its benchmark, the FTSE / JSE Capped SWIX All Share Index, which returned 39.8% over the 12 months.

“When we interact with other managers, we talk about four to five of their high-conviction calls,” said Bacher, who co-manages the portfolio with Simon du Plooy. The rest of the portfolio [outside the external managers] It’s about reducing risk relative to the fund’s peers or benchmark.

“We have built a proprietary risk management process that takes those underlying managers and selects stocks for a more diversified portfolio in terms of sector risk, liquidity and dispersion.”

Corion allocates about 70% of the fund’s assets to outside ideas and 30% to the ideas of its own managers.

Bacher said the “best ideas” approach used by the fund was developed from the experience of Corion’s hedge funds.

‘We thought the next extension was to bring this to the mainstream world. Corion is quite aware of the shortcomings of multiple management. For example, combining too many managers often results in an overly diversified portfolio, but there are many positives.

“The fund’s ‘best ideas’ approach was an evolution of our risk management systems, thinking and practice.”

At the end of October, the four underlying managers of the fund were Florin Capital Management, ClucasGrey Asset Management, Westbrooke Alternative Asset Management and Cast Iron Capital. Additionally, the fund recently appointed Keith McLachlan of Integral Asset Management.

Relations

‘Corion has been in the industry for twenty years, mostly in hedge funds, so we have a lot of relationships. We speak to managers who are less in the spotlight and who are willing to do this.

‘We are fortunate to have relationships with people who know us, trust us and believe that this type of product can grow significantly. Corion probably has a group of about ten managers in the industry that we think are ready for this type of product. ‘

Bacher attributes the fund’s annual performance to its managers’ stock selections performing well.

‘For example, Motus, Distell, Aveng, and MTN. Our underlying managers have found value in South African small and mid-cap stocks. You will not have the opportunity in your life to buy stocks at these valuations. We expected business activity to drive share prices to these levels. ”

The fund is limited to between 18 and 20 shares. The top ten stocks in the fund at the end of October were: British American Tobacco, Long4Life, EPE Capital Partners, Anglo American, Absa, Italtile, MTN, Assupol, Prosus and Afrimat.

“The new ideas for the fund are Northam Platinum and Momentum Metropolitan. Two months ago, we added Massmart, ”Bacher said.

Looking at the outlook, Bacher said the fund was rotating its positions as many of its ideas had developed.

“The fund is unlikely to be that exposed to the small and mid-cap sector,” Bacher said.

The fund charges a 1% management fee, excluding VAT.

The Corion Prime Concentrated Equity fund is one of 12 Corion Capital funds, which includes six hedge funds. The fund manager has R12.5 billion in assets under management, mainly under the banner of external clients.

‘All Corion funds have a significant portion of assets managed by selected and appointed underlying managers. However, unlike many multiple administrators, we internally manage certain beta and systematic rules-based strategies, ”said Bacher.

Justin Brown is a reporter for Citywire, providing knowledge and information for professional investors globally.

This article first appeared on Citywire South Africa hereand republished with permission.


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