Managing Risk in Times of Turbulence

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A feature of world financial markets over the past 5 years has been to reward excessive risk taking. Risk premiums between classes of assets and within classes of assets declined to unrealistic levels. Strongly increasing asset prices made many strategies look good.

To mix some metaphors and throw in some Buffet: “A rising tide lifts all ships but you see who has been swimming naked when the tide goes out.”

The recent market turmoil has exposed some strategies as being extremely risky.
At Rezco we have attempted to achieve:

  • Excellent returns but at all times minimizing the risk we are prepared to take.

Rezco has minimized Risk by

  • managing the cash percentage in the fund and;
  • avoiding speculative shares and market positions
  • Choosing shares that have excellent value rather than fashion appeal further reduces the risk.

We have also resisted the temptation to have a large concentration in a single sub-class of shares such as small caps, resources, banks etc. and have rather tried to have a broad footprint. Rezco has also sought to take advantage of the maximum allowable foreign currency exposure. This has in the past proved to be a drag on performance but we have felt it to be a prudent decision as diversification is the bedrock on which a low risk strategy must be built.

Our investment process looks for companies and markets that meet our internal value criteria. When we find these we believe in having the courage of our convictions and building a weighting of at least 3%. In some cases we may take this as high as 7-8% of the fund. Our fund would normally have about 20 shares compared to most Comparable Unit Trusts that have 60 or more shares.

Does Rezco Perform Comparatively?

Since inception the shares chosen by the fund have shown compound growth per annum as follows:

Managing Risk in Times of Turbulence

The core of our strategy is that the group shares which we selected have, on average, outperformed the market by 5.4% per annum. This has enabled us to match the performance of the JSE whilst at the same time keep a high-risk protection margin in cash.

(Due to the huge weighting of Anglo and Billiton in the JSE Overall index almost no funds of a general nature have beaten the JSE over this period.)

The effect of this is that the Rezco Value Trend funds shows far lower volatility than the overall market during market declines and Rezco Value Trend’s Morningstar 5-star rating further supports this fact.

The graph below highlights these concepts. The members of the fund can be assured that we take risk extremely seriously.

Managing Risk in Times of Turbulence 1

Administration Outsourced to Maitland Group

As Rezco Value Trend has grown we have found that the administrative duty has grown with it and will continue to grow as we expand. We feel that our resources would be better spent on what we are best at which is focusing on the management of your money and providing you with better service. Rezco is therefore very excited to announce that we have decided to outsource our administration to The Maitland Group. Maitland has been in existence for 30 years and has US$ 32 Billion in funds which it processes. They have world-class systems, in terms of processing ability, security and an experienced investment accounting staff to deliver the administrative function in a manner that is better for the functioning of Rezco and for you our unitholder.

Please note that you will continue to deal with us at Rezco and have FNB as the custodian of the assets it is just that the processing and pricing will be done by Maitland.