Issue: September/November 09
AN ACTIVE-ONLY INVESTMENT STRATEGY BEGS THE QUESTION:
“Do you trust your luck?”
Dibanisa Fund Managers
(previously Umbono Fund Managers)
Conventional wisdom dictates that not all your eggs should be placed in one basket when choosing the fund manager responsible for your members’ savings — as the possibility of underperformance by any single manager relative to the chosen benchmark is usually too high a risk to accept. The traditional approach to mitigate this risk is to allocate the fund across a few active managers, thereby diversifying the risk. However, this may not be the most effective method to mitigate the risk of underperformance and is certainly not the most efficient solution to reduce excessive total fund costs.
Our Product Development Manager, Kingsley Williams, looked at the performance of three well-known managers’ funds back in 2007. All three were ranked in the top half of the Alexander Forbes survey1 for their three-year returns. As of June 2009, one manager remained in the top half, another was a mid-performer, while the third was near the bottom. Only one fund outperformed the FTSE/JSE Shareholder Weighted Index (SWIX) benchmark.
If these same three 2007 top performers had been managing your fund since the inception of the SWIX benchmark (1 February 2002), you would have received a return of 17.3% a year as at the end of June 2009. Had you added a low-cost tracker fund, such as the FTSE/JSE RAFI All Share Tracker Fund2, to this blend, our study indicates that you would not only have improved performance (17.7% p.a.) but also lowered volatility (risk).
Furthermore, including the FTSE/JSE RAFI All Share Tracker Fund would have come at a lower overall cost — saving the blended fund 13.3 basis points a year. On a R300 million portfolio, this equates to a saving of more than R3 million over the seven-and-a-half-year period under consideration. The saving over 20 years is a staggering R12 million with NO performance sacrifice!
So in these volatile times, if you are not feeling that lucky, give Dibanisa Fund Managers a call and we will demonstrate how adding a tracker fund to your investment strategy is “applied common sense”.