Discovering REZCO with Wally Gray

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Preserving Capital – Creating Wealth

In recent years, the majority of new entrants to the unit trust industry have opted to establish what were commonly known as “white label” funds. This essentially enabled them to asset manage and market funds by piggybacking on the licence of a registered unit trust management company. Few aspirant unit trust newcomers were prepared to go through the complex and time consuming registration process to establish a fully-fledged, appropriately capitalised management company, with the operational and governance infrastructure required by the Regulator.

Rezco is one of the few asset managers who took the plunge and established a new management company and fund in September 2004.

The results have been quite remarkable with a compelling performance record in the industry that combines the twin elements of preserving capital and creating wealth while delivering competitive returns across market cycles, with low volatility.

Wally Gray, the founder of Rezco, shares some thoughts on the achievements of the Rezco team since 2004.

Q:  Why did you decide to form Rezco?

A:   We had already established a successful track record in private client asset management and believed strongly that our philosophy would be just as effective in the retail unit trust space. The cornerstone of that philosophy is that people entrust their capital to us to actively and responsibly manage for them, not only to create wealth over the long term, but also to protect their capital during periods of market weakness and volatility. This is reflected in the development of a flexible asset allocation strategy and a value based stock selection process, designed to avoid market excesses while still achieving superior performance.

Q:  How successful has the fund been?


A:   As you can see from the chart, the fund closely tracked a booming market through to mid-2008. Then due to the upheaval in the international financial sector, markets plunged steeply but Rezco anticipated the developing events and its investors substantially avoided the market collapse in the latter part of 2008.

From inception Rezco Value Trend investors have achieved a total return of 20.35% p.a. compound – In the same period the fund’s benchmark, the Johannesburg Stock Exchange All Share Index has produced a total return of 15.06%. This was achieved during a period when inflation averaged 6%, thus giving Rezco investors substantial, real returns. Since 2008, the fund continues to outpace the overall market.

Q:  How has Rezco performed within its sector and against the industry as a whole?


A:   As the above chart indicates, over the year to end – April 2012, Rezco’s total return was 23.48% against 4.76% for the market as a whole. More importantly, Rezco substantially outperformed the majority of its peers in the flexible fund sector to achieve a top quartile ranking and also outperformed the leading balanced funds.

For the 5 years to end April 2012, one of the most challenging in the investment world in decades, Rezco showed a total return of 11.5% p.a compound, again ranking it in the top quartile in both its sector and across the entire unit trust industry.

Q:  Performance is one thing but have you exposed your investors to higher risk in this process?

A:   The answer is an unequivocal no in the case of Rezco. The ratio used to measure the degree of risk taken to achieve a fund’s performance (the Sharpe ratio) is substantially better for Rezco than its peers and most of the unit trust industry i.e. the fund has shown outstanding performance while avoiding undue risk for its investors.

Q:  Tell us about the investment expertise and experience of the Rezco team.

A:   Rezco’s real strength is in the asset management team which has extensive experience, gained over the past 40 years, in pension fund, unit trust, insurance company, private client asset management, private equity, resources, investment and industry.

We have proudly built a reputation for our core values – integrity, trust and thorough professionalism. We also have the rare benefit of international experience in the form of Rob Spanjaard who is based in Annapolis, at the heart of the Washington-Baltimore asset management hub in the USA.

The team also benefits from the extensive experience and knowledge of its two non- executive directors Peter du Toit and Bernie Nackan.

Q:  Expand on Rezco’s investment philosophy and how it is reflected in the fund’s structure.

A:   We search for shares that are traded at a discount to their intrinsic value and for companies that display sustainable earnings growth. In this way, Rezco achieves above average returns. The fund has the flexibility to increase the weightings in different asset classes such as bonds, property, commodities and cash. Due to the actively managed nature of the fund, we shift the weightings between asset classes depending on the level of volatility and opportunity in the market.

Currently the fund is near its maximum allowable exposure to foreign equities and foreign cash holdings which stand at 21.3%.Local South African equities comprise 54.1% of the portfolio, South African government bonds make up 6.1% of the total net asset value while 18.4% is invested in local cash.

Our stock selection strategy focuses on international brands and on companies with strong earnings growth records, sustainable revenue streams and relatively low borrowings. This translates into core holdings such as Sasol, Mr Price, Discovery, Omnia and AVI in South Africa and internationally Allianz, Intel together with Apple and Google in the technology sector.

Q:  How does Rezco find sustainable growth in these uncertain economic conditions?


  • – Diversified portfolio structured by balanced asset allocation locally & internationally
  • – Screening out unattractive industry sectors
  • – Investing in companies capable of delivering sustainable earnings growth, based on good product demand with sustainable profit margins
  • – Companies with price-earnings (PE) multiples, based on projected earnings, of 15 or less
  • – Net debt to equity of less than 50 per cent – this reflects Rezco’s view that interest rates, currently at exceptionally low levels, will inevitably rise, and hence highly geared companies are avoided
  • – Reasonable share price to book value multiples

Rezco uses an extensive data base available on markets and companies globally with a quantitative screening system which makes the process manageable and effective.

By identifying companies which combine these features, Rezco is able to undertake in-depth research required to select new shares to the portfolio which can achieve a secure balance between risk and growth.

Q:  Who ideally should invest with Rezco?

A:   Rezco is a boutique investment house targeting high net worth individuals who can identify with our unique strategy and flexible approach. These are investors looking for consistent, long term returns who understand that a flexible strategy is imperative in the rapidly changing economic circumstances of our times. We look to investors who will take a 3 year view and allow us to manage the volatility in the interim.

In terms of distribution, we focus on the leading independent financial advisors and on the institutional unit trust platforms through which they operate.