Picture: ISTOCK
Picture: ISTOCK

Two prestigious Morningstar awards in important multiasset categories were scooped by NFB, a small asset manager that invests in both the actively and passively managed funds of other managers.

The award for the best equity fund also evaded the bigger asset managers, going to boutique manager Mazi Capital for the performance of its Prime Equity Fund.

NFB's low-equity and high-equity multiasset fund of funds won the awards in Morningstar's cautious allocation and moderate allocation categories.

Morningstar's categories are slightly different to those of the Association for Savings and Investment South Africa and used by the local unit trust industry - the equity allocations are usually slightly higher or lower.

NFB is an established manager serving private clients and smaller institutional investors such as charities and medical schemes.

The manager of Mazi's equity fund, Malungelo Zilimbola, launched Mazi (meaning cow in Xhosa) in 2006.

Zilimbola invests in undervalued shares but says he researches a wider range of companies than his competitors and considers trading conditions and company leadership. Before he invests, he considers what could go wrong with the company and in the Asisa category what the optimum investment size should be.

The Mazi Prime Equity Fund achieved a return of 12.28% a year on average over the five years to the end of January. It was ranked 21st out of 188 funds.

Both the NFB Ci Cautious Fund of Funds and the NFB Ci Balanced Fund of Funds have exposure to the local equity market through a low-cost fund, the Ci Equity Index, which tracks the Shareholder Weighted All Share index. Their exposure to offshore shares and bonds is also through index trackers —  the rand-denominated Sygnia Itrix MSCI World Index ETF and the Ashburton Inflation ETF that tracks a range of inflation-linked government bonds, respectively.

The Cautious Fund of Funds has a lower weighting in the local and offshore equity market trackers - currently at 26%, while the Balanced Fund of Funds has around 54% in these local and offshore funds.

Paul Marais, MD of NFB, says controlling costs has contributed to the funds' performance — total investment costs have been 1%, roughly two-thirds of its peer group.

Marais says passive exposure to the market benefited both funds to different degrees over the past five years, particularly in the form of an index weight to Naspers.

Marais says NFB does not try to call the currency and left its offshore exposure, apart from a handful of tactical trades, unchanged throughout the period.

Both funds also have exposure to actively managed flexible income funds managed by Coronation, Investec, Prescient and Atlantic and to the actively managed Sesfikile Property Fund, which Marais says had a "fantastic" 2017. Marais says the income funds have produced returns comfortably in excess of inflation.

The Balanced Fund returned 10.03% on average a year over the five years to the end of January and is ranked 24th out of 145 funds in its Asisa category, while the Cautious Fund had a higher average annual return of 8.99% a year and was ranked 12th out of 133 funds.

PSG and boutique manager Centaur were the other winning multiasset funds.

The PSG Balanced Fund won in Morningstar's aggressive allocation category (funds that are allowed to have more than 65% in equities) and Centaur BCI Flexible won in the multiasset category where a fund's exposure to different asset classes is unconstrained.

The award for the best bond fund was made to Coronation for the risk-adjusted performance of its Bond Fund.

The Morningstar category awards are annual but consider performance over periods of up to five years.

The Chicago-based company says the focus is on the one-year period but to better serve investors it avoids giving awards to funds that have posted a strong one-year return but have otherwise not delivered good results.

The awards methodology therefore takes into account the three- and five-year risk-adjusted returns, to recognise funds that have shown they have the ability to earn strong long-term returns without undue risk.

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