Investor’s Notebook – Little gems, perhaps?

By Financial Mail

A huge amount of trust has to develop before a fund manager can expect to earn large pension mandates. And much as I, as a trustee, wish to see some erosion of the extensive market share of the big three — Allan Gray, Coronation and Investec — I am reluctant to experiment with our members’ money. But for the sake of diversification it makes sense to choose a selection from outside the big three for discretionary investments.

Last week’s Meet the Managers conference in Sandton gave exposure to many funds little known to the public.

I know that Northstar as an asset manager was started by former PSG Asset Management head Adrian Clayton when he bought a financial planning practice. I also know Northstar is part of RMI Investment Managers, but I don’t see its logo in the marketing. That’s a mistake; surely endorsement by the highly successful RMB/RMI group can only help the frankly obscure Northstar.

In effect you give a blank cheque to the Northstar Global Flexible Fund, as it is entitled to invest much or little in any asset class. But it looks more like a traditional balanced fund, with that most old-fashioned of benchmarks, 60% MSCI World (equity) and 40% Barclays Global Aggregate (bonds).

Right now it has less than 10% in global bonds and it is overweight in equities, at 67%, with the balance in cash. And it takes bond exposure, not directly but through equal weighting in a Barclays Aggregate Tracker and an iShares 1-3 Year Treasury Bond ETF.

Defying conventional wisdom

Northstar fund manager Rory Spangenberg has a strong CV, which includes stints at Investec, BJM and the Sasol pension fund. He believes there is a category of shares that produce a superior return on free cash flow and will continue to perform in all market conditions. These shares can defy the conventional wisdom that everything reverts to the mean.

Spangenberg says Boeing has very strong free cash flow, as it is not developing any of its jets from scratch; each new one is an improvement on an existing model. It has helped that its recent Dreamliner planes have been far better received than rival Airbus’s A380.I was intrigued to see that Spangenberg also owns Blackstone, the private equity and real estate group. Blackstone CEO Steve Schwarzman once had a birthday party headlined by Rod Stewart when most people were going through hard economic times.

But Spangenberg says Blackstone has enviably strong relationships with the & gatekeepers& of private equity, such as the managers of the Harvard and Yale endowment funds and asset consultants such as Mercer and Willis Towers Watson. British American Tobacco is the only JSE-listed share in Northstar’s top 10. Others include Visa, now increasingly popular as a transactional firm without the risks of a bank, Unilever, a quality staple supplier and Medtronic, the medical equipment maker best known for the Pacemaker.

Northstar also owns Danaher Corp, which overlaps with Medtronic in some fields but is more diversified.

I always thought Sentio was a quants house but I found out at Meet the Managers that it actually knows where all the bodies are buried. I have never seen such an entertaining presentation on the travails of Steinhoff, Resilient and EOH.

And the Sentio General Equity Fund certainly isn’t a closet index fund. More than 17% of it is made up of FirstRand, Standard Bank and Absa. TFG is favoured over larger businesses such as Woolworths or Mr Price.

Keep a watch on both Northstar and Sentio.

It makes sense to choose from outside the big three fund managers for the sake of diversification

This article provided by NewsEdge.