Investec Asset Management (“Investec”)’s flexible investment culture allows for different styles of management to freely co-exist. This ability to capture value through a diverse range of philosophies, while adhering to the company’s risk guidelines, has underpinned its success at the BENCHMARK Fund of the Year Awards 2016, with Clyde Rossouw and Ken Hsia both winning Manager of the Year.
Clyde Rossouw is the Lead Portfolio Manager of Investec’s flagship GSF Global Franchise Fund (the “GFF Fund”) and is Co-Head of Quality team at Investec. He has also been a key member of the Global Franchise strategy since inception in 2007, pursuing a disciplined, long-term quality approach to equity.
When asked about investment philosophy, Rossouw explained that he and his team seek out quality companies which have long trading histories. These companies usually have high customer loyalty, strong brands and little or no debt. “We try to reduce uncertainty in an unpredictable market,” he explained, “and view these companies as more resilient in times of economic incertitude, having survived multiple economic cycles with their market position and competitive economics intact.”
According to Rossouw, such companies are unique: They typically have enduring competitive advantages in the form of intangible assets such as brands, patents, copyrights, licenses and distribution networks. This creates high barriers to entry and provides excellent long-term returns and resilience to investors.
The approach certainly works: the GFF Fund has participated meaningfully in up markets and delivered smaller drawdowns in declining markets.
The Spirit of Debate
The investment team’s strength lies in the way the investment philosophy is applied in practice. Given the unconstrained nature of the GFF Fund – there are no restrictions on the sector or geographical spread – so, the process begins with a broad definition of global equities that includes nearly 30,000 stocks.
This universe is then narrowed down by excluding smaller companies and those firms in areas of the market they believe to be capital intensive and lower quality, including the energy, materials, telecoms and utility sectors. Following this screening, roughly 800 stocks are left and are ranked based on four metrics: return on capital, profit growth, free cash flow conversion, and valuation.
During the second stage of the investment process, the team uses a bottom-up approach driven by proprietary fundamental analysis. The research agenda is set by Rossouw and Rob Forsyth, Head of Research, with input from the team’s investment specialists. Rossouw is very supportive of the company’s ‘freedom to create’ culture. He explained: “All research ideas are challenged and debated by the whole team. In doing so, we can draw on our diverse strengths and perspectives, enhancing the quality of conclusions.”
The final portfolio-construction stage of the process centers on maximizing the portfolio’s combination of quality, growth and yield, while minimizing the risk of a permanent loss of capital. The GFF Fund retains its focus, holding between 25 and 40 stocks, and as Rossouw observed: “I am willing to invest with conviction where real opportunities are identified. Moreover, it shows in our geographical diversification, with allocations in different countries across continents.”
Remaining with the theme of global expertise, Investec prides itself on an ability to offer its investors a range of high-quality, regionally focused funds. One such vehicle is the Investec GSF European Equity Fund (the “GEU Fund”), which is managed by Ken Hsia. Hsia has worked at Investec for 12 years and has 22 years of industry experience. He is also the portfolio manager for all of the company’s European and UK small- cap strategies. Despite his relatively short spell managing the Investec GSF European Equity Fund, it has delivered excellent performance and is widely regarded by the asset management industry.
“I work in tandem with our 4Factor Equities team, whose members all have direct performance accountability for a sector, region or particular strategy. Each sector has a designated global analyst, who is in a strong position to guide the strategy leader on stock selection. With everyone contributing their most powerful ideas, we construct our best-in-class European portfolio,” explained Hsia.
The 4Factor framework works in four stages. First of all, there is disciplined idea generation, with the team screening and scoring all European stocks with a market capitalization greater than $500 million to identify the highest ranking ‘good Ideas’. This is followed by a qualitative evaluation, where the team conducts in-depth fundamental company research to identify ‘best Ideas’ for inclusion in the GEU Fund. This critical second stage involves the fundamental research of a company, to build sufficient conviction to be held in the concentrated portfolio.
“We then look at these ‘best ideas’ and construct high-conviction, risk-aware fund,” said Hsia. He added, “The GEU Fund also has no benchmark constraints, which makes it very adaptable.”
The fourth stage is an ongoing process, ensuring portfolio integrity. Hsia leads a number of meetings on stock, portfolio, sector and process levels to ensure that the GEU Fund maintains the optimal risk/reward balance and each holding’s investment case remains robust and the rigorous sell discipline is met.
This team-level monitoring sits within Investec’s company-wide risk management process. Hsia elaborated on this: “As a company, we recognize that a properly structured investment process is the best form of risk control. Therefore, we identify where we are taking risks and ensure that this is consistent with our level of conviction in a particular stock. We also aim to identify unintended investment risks as projected volatility relative to our clients’ indices – a portfolio should exhibit sufficient, but not unduly large, tracking error to achieve its performance targets. Finally, we are always trying to identify weaknesses, evolve our processes and ensure that the risk within our funds is in line with expectations.
Commitment to Responsible Investing
Environmental, Social and Governance (ESG) integration is another priority for the firm, with both Rossouw and Hsia pointing out that ESG issues form an integral part of the investment process rather than exist as a separate procedure. To this end, Investec has a dedicated global ESG team that focusses on integration strategies, research and engagement efforts. BM
羅克穎是天達旗艦基金 — 環球特許品牌基金的投資組合經理，同時兼任天達優質股票團隊聯席主管。自環球特許品牌策略於2007年成立以來，羅克穎一直扮演重要角色，協助基金以富紀律、重質素的方式作長線股票投資。