The best of Denker | How the team generates returns for investors in the Denker SCI Balanced Fund

Nigel Barnes

The Denker Sanlam Collective Investments (SCI) Balanced Fund has delivered top-quartile performance over multiple periods since its inception in May 2017. Such consistent performance across market cycles and macro developments is the ideal outcome for investors. In this video, we cover how, under the management of Madalet Sessions and Jan Meintjes, this fund harnesses the best stock picking and risk management skills of all our portfolio managers to find the perfect balance for investors. Watch the video, or read the transcript, below.

The Denker SCI Balanced Fund has consistently delivered top-quartile performance.

Source: Denker Capital, Morningstar, 30 September 2021.
The A class has an annual management fee of 0.85% (incl. VAT). Returns are net of fees. Returns for periods longer than one year are annualised. The highest annual calendar year return since inception was 8.6% and the lowest was 1.6%. The legal registered name of the fund is the Denker Sanlam Collective Investments Balanced Fund.

Question for Madalet: The team’s approach is based on the belief that you can’t rely on one specific macro result for success. Can you please elaborate on that?

I started my career predicting macroeconomic outcomes and realised pretty soon that it is not a sustainable source of returns. So, at Denker, I leverage the team’s fundamental stock picking ability for the benefit of investors. We try to avoid relying on particular macroeconomic outcomes for returns in order to generate consistent returns for investors.

Question for Madalet: What is your role as a co-manager of this fund?

My role as a manager of this fund is to allow the best of Denker to shine through – that is, the stock selection and the opportunities identified by the bottom-up equity teams that generate the bulk of the returns that our investors expect. My role is really to mitigate reliance on macroeconomic events as a source of return, hopefully allowing investors to sleep comfortably at night.

Question for Jan: What is your role as a co-manager of this fund?

My main role at Denker is analysing stocks in the South African context from day to day, and as local equities make up the biggest part of the balanced fund, it’s a big part of what I do. So, I’m actually the link between the SA equity team and the asset allocation team for the balanced fund. We don’t simply invest in the Denker SCI SA Equity Fund. We pick similar stocks and there is a big overlap in our stock selection. But, depending on asset allocation and certain risk management strategies that we might favour, the stock selections might differ slightly. So, my role is really making sure that the bulk of the alpha generated in the SA equity space also comes through into the balanced fund. My secondary role, as part of the asset allocation team and understanding the risks inherent in the stock selection on the SA equity side, is that I work very closely with Madalet in understanding the risks inherent in that part of the portfolio and understanding the impact of certain scenarios that we run on asset allocation and risk management.

Question for Claude: How does your approach contribute to the returns of the fund over time?

We have a highly experienced SA equity team, with team members having up to 27 years’ worth of experience in SA equities, and a proven track record of being able to identify good quality companies at fairly attractive prices. From that perspective, it allows us to compound value for investors over time. Jan and Madalet are integrated directly into the SA equity team. This is important as they obviously play a big role running the balanced fund, and SA equities form a fairly large component of the overall asset allocation of the fund. Finally, it’s important to highlight that we run fairly unconstrained, non-benchmark-cognisant funds. That allows our best stock picking ideas to be filtered through into the balanced fund, which contributes fairly positively to returns in the fund over time.

Question for Jacobus: You focus on a wide investment universe. What do you look for in global opportunities and how does this add value to the fund?

Yes, we do operate in a very large universe. Very much like Claude and his team, we continually search for good companies and invest in them when they trade at attractive prices. So, our main contribution to Jan and Madalet and the balanced fund is giving them and their investors access to a wider range of good global companies. We look for companies that grow shareholder wealth over time, and because we operate in such a large universe, we place a lot of emphasis on our process and proprietary tools that we’ve developed to help us identify great companies. We then do research on the fundamentals to understand how they grow shareholder wealth over time. If we’re satisfied, we continue to track them and invest when they trade at attractive prices.

Question for Kokkie: What roles does the team’s experience and expertise play in the performance of the fund?

Firstly, we’ve been doing this for 30 years so we’ve got a lot of experience. The team I’ve got with me now has been with me for between three and five years and we’ve really grown in knowledge. Focusing on a bottom-up approach, we try and find the best opportunities in the world. The guys work hard – we fly all over the world (Covid-19 was a bit of an exception), meet management teams, and try to find companies that will help us outperform. Where the real benefit comes in, is our work with Madalet in that her knowledge of macro factors challenges us the whole time in terms of understanding what the macro risks are. So, I think the two dovetail each other well, with the bottom-up selection process from us and the challenge on the macro process from her.

Question for Jan: What would you say makes this fund different?

The balanced fund brings to clients the very best of Denker Capital. If you, as an investor, believe in the people that work here, this is the one fund to buy because it taps into the experience and expertise of all the different teams. So I think that’s the biggest differentiator. If I only look at the SA equity team where I am more involved on a day-to-day basis, I think that our experience in the small and mid cap space is a big differentiator. We have a long track record in managing equities in that area and I do believe that, particularly where we are now and where global stock valuations are, it is going to play a big role in differentiating our returns from the competition over the medium and long term.

Question for Madalet: How would you explain your approach to risk management?

Risk management is not about being cautious – it is about being prepared for curve balls. Jan and I take unexpected outcomes very seriously, and we try and mitigate these and the impact of these on investors. This makes the fund ideal for a wide range of investors, but ideally suited to those looking for long-term returns.

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Disclaimer

The information in this communication or document belongs to Denker Capital (Pty) Ltd (Denker Capital). This information should only be evaluated for its intended purpose and may not be reproduced, distributed or published without our written consent. While we have undertaken to provide information that is true and not misleading in any way, all information provided by Denker Capital is not guaranteed and is for illustrative purposes only. The information does not take the circumstances of a particular person or entity into account and is not advice in relation to an investment or transaction. Because there are risks involved in buying or selling financial products, please do not rely on any information without appropriate advice from an independent financial adviser. We will not be held responsible for any loss or damages suffered by any person or entity as a result of them relying on, or not acting on, any of the information provided. The information to follow does not constitute financial advice as contemplated in terms of the South African Financial Advisory and Intermediary Services Act of 2002 (FAIS Act). Use or rely on this information at your own risk. Independent professional financial advice should always be sought before making an investment decision as not all investments are suitable for all investors. Sanlam Collective Investments (RF) (Pty) Ltd (SCI) is a registered and approved Manager in terms of the Collective Investment Schemes Control Act.

The Manager of the range of Denker Capital South African funds is Sanlam Collective Investments, a registered and approved Manager in Collective Investment Schemes in Securities. The Manager retains full legal responsibility for third party named portfolio. The Sanlam Group is a full member of the Association for Savings and Investment SA. A schedule of fees and charges and maximum commissions is available from the Manager. Standard Bank of South Africa Ltd is the appointed trustee of the Sanlam Collective Investments schemes. International investments or investments in foreign securities could be accompanied by additional risks such as potential constraints on liquidity and repatriation of funds, macroeconomic risk, political risk, foreign exchange risk, tax risk, settlement risk as well as potential limitations on the availability of market information.

Returns are annualised and net of fees unless otherwise stated. Annualised returns are returns for a period that are scaled to one year. Collective investment schemes are generally medium- to long-term investments. Please note that past performances are not necessarily an accurate determination of future performances, and that the value of investments / units / unit trusts may go down as well as up. Changes in exchange rates may have an adverse effect on the value, price or income of a product. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Collective investments are calculated on a net asset value basis, which is the total market value of all assets in the portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. Actual investment performance of the portfolio and the investor will differ depending on the initial fees applicable, the actual investment date, and the date of reinvestment of income as well as dividend withholding tax. Forward pricing is used. Additional information of the proposed investment, including brochures, application forms and annual or quarterly reports, can be obtained from the Manager, free of charge. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. The performance of the portfolio depends on the underlying assets and variable market factors. Performance is based on NAV to NAV calculations with income reinvestments done on the ex-div date. The Manager has the right to close any portfolios to new investors to manage them more efficiently in accordance with their mandates. Lump sum investment performances are quoted. The portfolio may invest in other unit trust portfolios which levy their own fees, and may result is a higher fee structure for our portfolio. All the portfolio options presented are approved collective investment schemes in terms of Collective Investment Schemes Control Act, No 45 of 2002 (CISCA). The portfolio management of all the portfolios is outsourced to financial services providers authorized in terms of the Financial Advisory and Intermediary Services Act, 2002.

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About the author

  • Nigel Barnes

    Nigel’s focus is to drive the business development strategy and lead the sales function. Before joining us, Nigel fulfilled a range of business development and sales roles over a period of 10 years at Investec. While living in London, before relocating to South Africa, Nigel was the sales director at Deutsche Asset Management and a director at Close Finsbury Asset Management. His career started in 1995 and has included consulting work, where his main focus was building strategic partnerships in the financial services industry. Nigel joined Denker Capital in 2018, bringing with him a wealth of local and international asset management industry experience.