Headline news for the right reasons

Investec Asset Management has seen its fair share of changes over the last 12 months. But, says Sarah Godfrey, the group has taken it all in its stride and is more than happy with the results.

The assertion that no news is good news would at first glance seem to be bad news for Investec Asset Management, which has certainly been in the news since Fund Strategy’s last focus on the company in March 2004. Since then the range of funds available to British investors has risen from 10 to 21, assets under management in these funds have gone from 1bn to more than 2bn, and there has also been considerable change at the manager level. Over the past year, 12 of the 20 funds with a one-year track record are in the first or second quartile of their respective sectors, with 13 out of 18 in the top half over three years.

Investec’s global equity, UK growth and Asian portfolios are run according to a four-factor process. After using a computer-based system to screen a universe of about 1,000 stocks, the managers then score the companies according to strategy, dynamics, valuation and “technicals”.

Aside from the four-factor team there is a UK Value team, which focuses on fundamentals and likes to meet company management, and a fixed income team, headed since last year by John Stopford, who previously worked in Investec’s South African business.

In July last year, three of the managers from the four-factor team – Nick Mottram, Michael Rimmer and Jeremy Rigg – as well as two analysts, left the company in a dispute over pay. BestInvest investment adviser Justin Modray says: “Investec could struggle in the short term to regain its former glory as it has suffered very high reputational damage. A lot of intermediaries tend to go on the basis of general perception, and when a lot of managers leave that can damage a firm’s reputation.”

However, Investec managing director David Aird is sanguine about the losses. “There are 17 investment professionals on that team, so it is not as if the cupboard was bare,” he says, adding that new hires Ken Hsia on the UK side and Sandy Merwitz on the global side have filled any gaps.

He is also happy with Investec’s sales in the past year, saying that Investec is unusual in that it focuses on all the intermediary distribution channels from the top-end wealth managers to the network IFAs and life company links. “Our total share of intermediary net sales in the 12 months to March 31 [according to the Investment Management Association] is 7.3%, up from 3.2% a year before, so we’ve doubled our net market share in just over a year,” he adds.

In recent months Investec has re-engineered the remuneration structure for its fund managers so there is a direct connection between that and the performance and profitability of products, on a desk-by-desk basis. Aird says: “If the products are successful – defined as first-quartile performance over certain rolling periods – and we raise assets, then profitability will dictate the earnings potential of those teams. If the clients do well then the fund managers will do well too.”

He admits the introduction of this new system was driven in part by the departures last year, but adds: “As fund managers move round the industry they might get richer, but the unitholders probably don’t. Our new pay structure is fair: as we grow the business through performance, the managers will share that and hopefully we’ll hold on to them.”

Of the managers who left, Aird says: “What is on offer to our current members of staff is just as good as what was on offer to them. You can’t go on with negotiations that will cripple a company.”

In spite of concerns over the damage done to Investec’s reputation, Modray says there are still four funds BestInvest’s fund research team recommends to its advisers – Capital Accumulator, European, Global Free Enterprise and Sterling Bond. Marcus Brookes, fund of funds manager at Gartmore, does not hold any Investec funds in his portfolios, but says: “That’s nothing to do with the quality on offer from Investec. We only hold 35 funds, so it’s not like our days at Rothschilds where we had 27 different portfolios.”

The best-performing fund in the range in absolute terms over three years is the UK Smaller Companies fund, managed by Dan Hanbury. It is fourth of 52 funds in its sector over the period, with a return of 57.02% against a sector average gain of 26.55%. Over one year it is ninth of 56 funds. Brookes says: “We came very close to buying the UK Smaller Companies fund about a year ago. Hanbury is very enthusiastic and has produced some fantastic numbers. We only hold the Framlington UK Smaller Companies fund, which is the top performer over the past year, but Hanbury has done really well and you wouldn’t be disappointed if you had chosen that fund.”

The worst performer over three years is the Global Technology fund, which joined the UK Oeic when Investec closed its Dublin offshore range last year. It is 14th of 18 funds in its sector over three years, with a decline of 21.69% compared with the sector average loss of 11.57%. All the other Dublin funds were merged into their onshore equivalents, but there was no equivalent for the tech fund. Aird says: “We strive to be good in all areas but there will always be a couple that don’t perform that well.”

Among Investec’s other big-name funds are its European fund, managed by Albert Morillo at BlackRock, and its American fund, run by Bill Fries of Santa Fe-based Thornburg. Both have had a couple of tough years but are now creeping back up the performance tables. Brookes says: “The great thing about Investec is it has proved that outsourcing to established teams can really work. No-one in Britain had heard of Thornburg when Investec launched its American fund, but Bill Fries is a hugely experienced investor with a great long-term track record.”

As a fund with a large-cap growth bias, Morillo’s European fund has been out of favour with the market. “The market has hated his sort of stocks in the past three years but he has stayed true to the faith,” says Brookes. “Now the market seems to have started appreciating them and Morillo’s numbers have picked up. If there is a real shift in the market, Morillo will do brilliantly.”

Much of Investec’s recent marketing effort has focused on Alastair Mundy, manager of the Cautious Managed, UK Value and Capital Accumulator funds. Aird says: “Cautious Managed is a classic fund that intermediaries can default to when they don’t know which way the market is going. Trying to get the timing right between all the different types of bonds and between growth and value in equities is one of the hardest things to do. If you are a general practice IFA, are you absolutely equipped to make that call? We are seeing incredible growth in mixed-asset funds as advisers would rather delegate that responsibility.” He notes that the fund attracted 35% of gross intermediary flows into its sector in the 12 months to March 31.

Brookes adds: “Mundy has done a really good job on the Value fund, and that tends to get overlooked. He also had a really good call on the Capital Accumulator fund, getting out of all the poor-quality zeros before the market collapsed. He’s a really savvy investor and a really down-to-earth guy who loves what he does. And his numbers are good too.”

One of Investec’s major ambitions for the Cautious Managed fund is to capture business from the all but defunct with-profits market. Aird says: “There are hundreds of billions of pounds locked in ‘closed’ with-profits funds that have very little opportunity of growing because the actuaries have moved vast amounts of their assets into bonds. The outlook for those assets is very poor, and advisers should review their clients’ holdings to see whether they should perhaps switch into a managed fund with a similar asset mix but a lot more upside.”

Brookes agrees: “We are after the with-profits market with our Cautious Strategy fund too. But trying to persuade people to take a market value adjuster of 25% to switch out of their with-profits fund is pretty hard going, and you must be pretty sure your fund is going to perform. However, long-term it will work; the MVAs are coming down and investors will get better transparency by switching out of with-profits.”

Other recent developments for Investec include the passporting of its UK Oeic into Europe, having taken the decision to close the Dublin range. The funds are currently registered for sale in Germany, Switzerland, Luxembourg and the Netherlands, and only last week a Swiss private bank invested $143m (79m) into the Global Equity fund.

Under John Stopford the fixed income team has been expanded, with former M&G Corporate bond fund manager Anna Lees-Jones joining, among others. Investec also took over the management of MGM’s unit trust range, which it merged into its own range in April, and is enjoying such a good spell with the established offshore Investec GSF Global Energy fund that it launched an onshore version in November. “It’s the first onshore energy fund,” says Aird. “We hope it will give us the kind of first-mover advantage enjoyed by other thematic funds in the Specialist sector such as Framlington Health and JPMF Natural Resources.”

In the coming year, says Aird, Investec will be “focusing on Ucits III, finding new talent and stealing business from the with-profits market”. It is also one of five companies chosen to provide investment management for a new investment bond to be offered by Hartford. The other four are Schroders, Invesco, Fidelity and New Star, and Aird says he is delighted to be chosen and put in the same peer group as these four.

So while the mass walkout was undoubtedly bad news at the time, Investec has shaken it off and is firmly focused on the future. Aird sums up: “The management team is working tirelessly to ensure Investec is at the forefront of people’s minds. We are convinced the progress we have made in the last five years is nothing to what we are going to do in the next five.” With-profits providers had better watch out.


Asset Management is a division of South African financial services giant Investec. It entered the British retail fund market in 1998 with the acquisition of Guinness Flight Hambro. Total funds under management have grown from 20bn to 22.9bn in the past year, and assets in the retail Oeic, which now has 21 subfunds, have grown from 1bn to 2.1bn. Investec also has an offshore fund range based in Guernsey.