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Coronation returns to market favour
LUCIENNE FILD Looks at Coronation in our asset management companies seriesWITH 192 local unit trusts on offer, choosing a fund can be a perplexing task. The easiest starting point for most investors is to choose a good asset management company and then select a fund with a risk profile that matches theirs. The aim of this occasional series is to give you a deeper insight into local asset management companies. This week we focus on Coronation Asset Management.
The company Formed in 1993, as a subsidiary of Coronation Holdings, by five portfolio managers (the managers had just left Syfrets). The five were later joined by 15 of their former Syfrets colleagues. Coronation manages both institutional and retirement assets, and unit trust funds.
Size Assets under management of R20.4-billion, of which R4.1-billion is in unit trusts. The balance is money managed for retirement funds and institutional investors. The company employs 45 people and has offices in Cape Town and Dublin.
The mission A company wanting to succeed in a changing environment must be flexible and willing to adapt to market changes, says MD Thys de Toit. Within this framework Coronation aims for the following ethos:
Coronation recently established an office in Dublin to manage its international operations.
Investment philosophy Coronation's philosophy is driven by its belief that portfolio risk is reduced by thorough research, rather than by holding a greater number of shares in a diversified portfolio.
A bottom-up investment approach is followed, which encompasses industry and competitor analysis, management visits, financial statements and ratio analysis and international comparative evaluations. "The unique feature of Coronation's philosophy is an unwavering focus on stock selection," says Du Toit. A dip in performance at the beginning of last year (as a result of Coronation's mining exposure) and changes in the retirement industry (the swing from defined benefit to defined contribution pension funds) caused Coronation to refocus. "We realised," says Du Toit, "that future investment decisions should be taken according to industry lines and no longer on a regional basis." The swing from defined benefit to defined contribution funds has seen Coronation focus more intensely on the retail market by providing more unit trusts. This is because pension and provident fund members are increasingly able to decide where they want to invest their money.
Who's who Thys du Toit is the managing director. He is 39 and has a BSc and an MBA. Magda Wierzycka is a 28-year-old actuary and is in charge of business development. She has a BBusSc. Anthony Gibson, the chief investment officer, is 41 and has a BCom. Walter Aylett, 36, heads the research department. He is a chartered accountant.
The investment team There are seven portfolio managers; all hold post-graduate qualifications and their average age is 35. The reporting structure is flat "to ensure no time is wasted climbing the corporate ladder", says Du Toit. At Coronation you are either a portfolio manager or an analyst.
Staff compensation While basic salaries are below the market average, attractive rewards are offered for outstanding performance. Apart from the usual share option plans, Coronation staff share in 30% of pre-tax profits as a bonus, depending on merit.
Research capacity The asset composition of portfolios is made up along industry or sector lines. Coronation divides the market into six broad themes: consumer; new era; financial; cyclical; commodities; and gross domestic fixed interest. Each research team consists of a portfolio manager and some analysts (there are 11 analysts in total). A working group researches both local and international stocks.
Performance Coronation has a winning pension fund performance. Of the 10 largest investment managers surveyed in Alexander Forbes's most recent Manager Watch, Coronation is first over a one-year period (with a return of 9.2% to June) and second over a three-year period (19.4%). On the unit trust side, performance has been good. In mid-1997 Coronation took a strong view on mining, but the market moved the other way and performance dipped strongly. The Coronation High Growth Fund took the biggest knock, but recent figures show that the fund's performance has managed to move back into the upper quartile. See the accompanying table for details.
The product range Coronation offers wholesale pension and provident fund products and nine local unit trusts. See the accompanying table for details.
What brokers say Brokers are full of praise for this asset management company. Words used to describe Coronation include "impressive", "dynamic" and "world class". While clearly remembering Coronation's painful mistake last year when their call on mining led to a drastic drop in performance, brokers said they were impressed with the honest and open way Coronation dealt with the issue. "They ended up off the tracks, but they took the flack, admitted their mistake, fixed it and learnt from it."
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