Sygnia’s criteria for selecting active managers

Sygnia has laid out the criteria it uses for selecting the active managers in its R906 million Sygnia Equity fund.

The fund uses a core-and-satellite portfolio construction approach, with 60% being passive and 40% active. Four active managers are each allocated 10% of the portfolio. Currently, those are Abax Investments, Coronation Fund Managers, Ninety One and Visio Fund Management.

“What this provides you with is a blended approach that can help outperform the benchmark – so that is where the active managers come in, but we are still mindful of costs,” said Sygnia’s head of investment consulting Iva Madjarova during a webinar.

“Sygnia performs quantitative and qualitative research, which involves meeting with as many team members as possible,” she added. “We have meetings with key individuals like CIOs, portfolio managers and analysts – the key decisions makers. They take us through their processes and philosophies.

“We try to get a gut feel for what they can bring to the portfolio – their passion for investments. We try to understand their background, history and experience from an investment perspective,” Madjarova said.

Based on the meetings and data analysis, Sygnia then creates a shortlist of asset managers which are scrutinised using operational and risk management due diligence.

“We would look at their assets under management, their black economic empowerment [BEE] level, how long the company has been around. How big is the investment team, and is it well resourced? Do they do ESG [environmental, social and governance] screening and have ESG analysts? We look at their performance through the market cycle.

Read: Why all the fuss about ESG?

“Then negotiations take place, including important fee negotiations. The lower the asset management fees, the lower the cost we can provide for the overall product. Being a large multi-manager, we have a lot of scale. We can negotiate competitive fees with these active managers, resulting in lower costs for the overall product.

“The proposal for a new manager is taken to an investment committee chaired by our head of investments. There is a representative from each asset class. This is where we finally decide who the new manager will be,” Madjarova said.

Once Sygnia has decided to invest with an asset manager, it will include the new manager in its in-depth monthly coverage and analysis of all its managers.

“If anything is unclear to us, we immediately pick up the phone and clarify the positions with the asset manager. In addition, deep analysis and monitoring are performed after we invest,” she added.

Lineup changes

Sygnia changes its asset manager lineup if it feels the portfolio can benefit from a manager change or an extra active manager.

“The manager search process is not something that we only undertake when we want to change portfolios. We are constantly meeting with various active managers, so we have periodic manager reporting and presentations. These presentations are not only with an asset manager that we invest in but with others that we have never invested with.

“It is crucial to stay up to date with developments in the asset management industry. We often see key individuals move from one business to another. That is key when you are considering who you would like to manage portfolios,” Madjarova said.

Speaking specifically about the Sygnia Equity fund, she said the fund manager research process indicated that a boutique manager would add value to the portfolio.

“Boutique managers – because of their size – are more nimble. They can move out of positions relatively quickly. Our research led us to believe that this manager would complement the other asset managers in the portfolio and diversify the portfolio,” she added.

Sygnia Equity fund returned 24.4% over the year ended September compared with 22.9% from its benchmark. The fund’s benchmark changed to the FTSE/JSE Capped Shareholder Weighted index on July 1.

Since the fund’s inception in May 2013, it has returned an annualised 6.8% compared with an annualised 8.1% benchmark return.

Justin Brown is a Journalist at Citywire, which provides insight and information for professional investors globally.

This article was first published on Citywire South Africa here, and republished with permission.