credonews #27

19 Pages·2017·6.19 MB·English

20 years of evolution
Move to
York Gate
&
90 staff
Some of the numerous highlights since the group was founded back in 1998 launched
(and how the firm’s assets under administration have grown over the period) Johannesburg
Bryanston
office opened launched
2.9
£ bn
Launch of
Launch of
released
6900
2.5 client
£ bn
accounts
Move to Launch of
Pall Mall
established
2
Roy Ettlinger £ bn
appointed Credo turns
CEO
50 staff 1.5
£ bn
Cape Town
1st financial office opened
Johannesburg intermediary launched 1st issue released
office opened founded client becomes a 5000
client
shareholder
accounts
1
founded £ bn
500
£ m
2500
250
£ m client
accounts
60
£ m
1000
client
accounts
Click here
to continue
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 to CredoNews
The folly of
market timing
Deon Gouws
In our nature
Ainsley To
Just a little misfortune
Trevor Black
The implementation of MiFID II
Alex de la Harpe
...and more
Message from the CEO | Roy Ettlinger | @Ettlinger_Credo
Time flies when
you are having fun
It is hard to believe that it has been
20 years since Credo was started
02 |
Upon reaching any significant Over the last two decades, there My hope for the next 20 years is
anniversary, it is often tempting to have been countless people who that Credo continues to grow and
look back and reflect and I think have contributed to the growth and go from strength to strength. Given
we can all be proud of what we success of Credo, many of whom the amazing team of people
have built and what Credo has are still with Credo, whilst there are working at Credo, the platform and
achieved. The graphic illustration others who despite having left the infrastructure we have developed,
earlier in this publication reflects group continue to support us as and continue investing in, as well
only some of the numerous partners or referrers of clients. as the loyal clients we have, I am
highlights since I founded the group absolutely confident that Credo and
back in 1998, together with Mark, We have created a fantastic its clients will continue to prosper.
Gavin, Greg and Jacques. corporate culture and probably
my proudest achievement has It is often said that success is all due
Soon thereafter Alan, Rupert, Gary been to watch countless of our to a mixture of hard work, timing
and Jarrod joined us, and since young people grow, develop and and luck, and whilst that is not
then many others have joined the succeed, and fortunately many of something I would wish to dispute,
Credo family. them are still with Credo today. my philosophy has always been to
back good people, and inevitably
In 2005, when I became CEO, It has been wonderful that will bring about success – I
we were fortunate enough to have been lucky in my partners,
to have built numerous
bring the Kirsh family on board clients and the people who make
long-standing client
as shareholders, and ever since up the Credo family.
then they have consistently relationships, many of
proved to be value added and which have over the years How time flies when
supportive partners, and I look
developed into personal you are having fun.
forward to further developing and
friendships as well.
strengthening our relationship.
credogroup.com | 03
Deon Gouws - CIO | @DeonGouws_Credo
The folly of
market timing
As one reflects on Credo’s growth so!” and “This is the beginning of “Far more money
as a business over the past 20 years, the end!”; when markets started to
has been lost by
it seems appropriate to bear in recover slowly but surely a few days
investors preparing for
mind that all of this has been later, most of them were quieter, for
playing out against the backdrop obvious reasons… corrections, or trying to
of financial markets which have anticipate corrections,
been particularly strong over the Whilst I would never claim to
than has been lost in
same two decades (even allowing know any better than this army of
corrections themselves.”
for a couple of major crashes, acclaimed investment strategists,
several other hiccups and a my personal answer to the asset
number of scares along the way). allocation question tends to be What does a “full allocation” to risk
pretty consistent over time: I believe assets mean? The response won’t
Accordingly, whilst Credo it is always advisable to take as be the same for everyone, and it
celebrates this landmark, much risk as makes sense in your will depend on one’s risk profile as
practically every financial market own individual circumstances. For well as investment horizon.
in the world finds itself at a rather myself, that means a full allocation
elevated level; at the time of to equities; for others, it may be a There are many people who are
writing (i.e. early March 2018), the variety of other risk assets, based able to afford a fair amount of risk
S&P500, for example, is trading on their individual background, (i.e. they may be relatively well-
within 5% of its all-time high circumstances, knowledge and off, in good health, not have too
reached just a few weeks before. experience, e.g. commercial many dependents, lead a modest
property, farmland or direct lifestyle, etc.), but their personality
So, what should an investor’s business interests. traits could be such that they simply
allocation to risk assets be in a have a very low tolerance for risk.
high conviction portfolio, given Even though it seems fashionable In other cases, the exact opposite
that “everyone” seems to agree to describe yourself as a bearish may be true: some people are
about markets being expensive investor these days (judging by active risk seekers (think of those
and that a sizeable drawdown may how many respected market in your network who enjoy a bit of
be around the corner? To be sure, participants have joined those sports betting), but they may in
large parts of the financial press has ranks), I take inspiration for my more fact have a fairly low risk capacity
been awash with some very bearish sanguine view from a number (as they may simply not be able to
pronouncements by global asset of other investors in history. Peter afford any substantial losses, given
allocation experts for some time Lynch, for example, had this to their needs).
now. When global equity indices say after his retirement from a very
declined by some 10% towards successful career as manager of There is nothing inherently wrong
the end of January 2018, many of the Fidelity Magellan Fund more with falling into either of these
these people were yelling “Told you than two decades ago: camps: every one of us is different.
04 |
These two sets of clients would to having practically all of my and multi-decades lows in the wake
however need to be classified my family’s nest egg in the form of of the global financial crisis). Were
as lower risk investors, given that equities – even though I fully realise you actively topping up and piling
both the capacity for risk as well that the market is not cheap. into equities at basement bargain
as the attitude to risk (viewed prices? You may be the exception,
independently) serve as constraints I am prepared to stomach the but most investors were not high
as far as a client’s risk profile is drawdowns when they come, conviction buyers at the time: the
concerned. No full allocation to risk given that the actual timing of the very reason why market bottoms
assets in this instance, therefore… next possible market correction are formed, is that the vast majority
is essentially unforecastable (not of market participants end up
As far as time perspective is even those renowned global asset being bearish at the same time.
concerned, it is common cause allocation experts can foresee this
that investors are best placed if kind of event with any consistency, The best defence that an investor
they are willing and able to take a much as I admire some of them). has against the vagaries of
long-term view: this allows for the financial markets, is to acquire a
mathematics of compounding to In fact, I don’t even see a possible basket of quality assets (that he or
work its magic, and it also helps correction as the biggest risk to she understands), taking care not
smooth out the impact of short- the ultimate financial wellbeing of to overpay for them, and holding
term market fluctuations. an investor: what one should be on for the longer term. The specific
much more worried about in my basket will of course differ based
The problem is that everyone has a view, is your own behaviour when on preference and risk profile, but
different view of what the long-term eventually it happens (as no doubt it is the principle that matters. And
entails: some think that it’s five years, it will, sooner or later). Will you blink don’t lose too much sleep over
others might say ten… however at the bottom, sell out of equities the fact that you will get some
neither of these really boil down to and lock in your losses for evermore? individual exposures wrong: as
the long term, in my view. To illustrate: And before you say no, bear in mind long as you make diversification
it has been a full decade since the that it’s simply natural to experience your friend, it should not matter
start of the infamous global financial the same fear as those around you that much in the end.
crisis of 2007/2008, and we have not when there’s “blood in the streets”…
even had a full economic or market More than anything, don’t get too
cycle since then. For the vast majority I will go one step further: say you perturbed by the forecasts of all
of the period, we have seen interest are lucky enough to get your timing those experts. As the same Peter
rates in developed markets at or right, and you raise a substantial Lynch referred to earlier once said:
near zero, for example. portion of cash just before the
market actually crashes: do you “I can’t recall ever once
Having turned fifty only a few years really believe you will have the
having seen the name of
ago and being in relatively good wherewithal to put most of that
a market timer on Forbes’
health (at least as far as I know money at work later on, when
today, thankfully), I personally view everyone else appears to be a seller? annual list of the richest
the long term as a minimum of
people in the world.
twenty years or more. I am fortunate Assuming you’ve been a market
If it were truly possible
that I have a job which I enjoy, and I participant for a while, you may
hope to be able to earn an income find a clue to answering this last to predict corrections,
from it for many years to come. question in how you felt and you’d think somebody
Add to this the fact that I have behaved in the first quarter of
would have made
trained myself to be a “glass half 2009 (i.e. when markets eventually
billions by doing it.”
full” person, and all of this adds up bottomed out and traded at
credogroup.com | 05
Trevor Black | @trevorblack
Just
a little
misfortune
sufficient capital under different
scenarios… What happens if
”Past performance is not indicative interest rates rise? What happens if
of future results” is the ubiquitous the market crashes? What happens
disclaimer that goes on all sifting through those visions to find if oil prices go up? Stress tests are a
financial products. Looking into the what is replicable, and what good form of risk management.
future is like staring into a crystal questions can be asked.
ball: there are an infinite number The objective is to identify, evaluate
of paths on which we may travel, There are some standard good and prioritise the risks to focus on.
and the crystal ball shows just one questions. Learning more about There are things we know, things we
fuzzy possibility. As it happens, the the people involved. Attempting know we don’t know, and things we
past is deceptively similar: to understand the processes that don’t know we don’t know. The most
there are an infinite number of have been put in place. Looking for dangerous elements are things
alternative histories that could have consistency in general philosophy. we think we know for certain, that
happened, and what actually Although past performance doesn’t are wrong. That is where the ‘past
happened, is just one of these. typically repeat, it gives clues as to performance’ disclaimer comes
what the constraints may be. in: buying an investment product
Our memory of the past is also thinking that you are buying a
fuzzy. We forget uncertainty, The past is one version of a “stress known return without any variation.
avoid ambiguity, overestimate test”. Stress tests gained notoriety
the probability of vivid things that after the global financial crisis as The longer the history, the more
are easy to understand, and financial institutions had to create ‘extreme events’ you are able to
reinforce whatever beliefs we simulations of the future to test test. Investment tends to have a
already have. The challenge is whether or not they would have ‘fat tailed’ shape. This means the
06 |
“the best I can wish you
is a little misfortune…
just a little”
average performance is just one
thing you need to look at. What is
just as important, is looking at the What is being made?
tails, the rare events. What could
Who are the customers?
go really wrong? What could go believe that a history of success isn’t
really well? That is where history Who are the competitors? by chance; it shouldn’t be ignored.
becomes more useful the more We wouldn’t be investing our own
of it you have. Lessons learnt The present is a product of the past, money if we weren’t believers in this.
become known unknowns. The truly and history gives an indication of It isn’t blind belief; it is a considered
rare events, the unknown unknowns how we got to where we are. Less approach to uncertainty.
won’t be in the history. Nassim about cause and effect, and more
Taleb calls these black swans. about the characteristics of the Quoting the Fairy Blackstick in
Another white swan (i.e. another game. This means that performance “Tender is the Night”, F Scott
year of investment performance) becomes just one of many very Fitzgerald suggests “the best I can
doesn’t prove that black swans tangible bits of information on wish you is a little misfortune… just
don’t exist (e.g. a fund going bust). which decisions can be based. a little.” Taleb would call this being
‘antifragile’. If you have a perfect
Modelling the future, by definition, Long-term investors know that, while track record, there is little information
can’t include all the things we what happens in the next few quarters about how you will handle difficult
don’t know. It takes a set of or years is important, those returns are periods. That is the real challenge of
assumptions and performs a (hopefully) just a small fraction of the a good investment philosophy. There
series of what ifs. So, with all the full extent of the earning capacity will be periods of underperformance
uncertainty, why even bother? of a business. Performance tends that highlight the resilience of the
to be much more volatile than the people and process. That test if
Fundamental investors believe that underlying fundamentals. This means they are able to stick together and
when you are buying a share, you underperformance can be an keep on keeping on.
are buying something real. You aren’t opportunity, as expectations
just speculating on a price. You aren’t naively mimic history. Credo have stuck
just hoping someone else will buy together for 20 years.
whatever it is (you don’t care) for We believe that diligent analysis and
Here is to 20 more…
more later. As such, fundamental patience should result in satisfactory
with just a little misfortune.
investors ask very practical questions. long-term returns. We clearly also
credogroup.com | 07
Kathryn Linde - Relationship Manager
Diversified
equity portfolios
The Best Ideas and Dividend Growth portfolios are diversified global equity
portfolios, which we believe to be well positioned to outperform the wider
equity market over the longer term. The portfolios have biases towards
developed-market, large-capitalisation stocks.
Performance Performance Performance
Return (%) Return (%) Return (%)
YTD 1.2 YTD -0.3 YTD -1.8
1 Month 1.2 1 Month -0.3 1 Month -1.8
3 Months 7.2 3 Months 3.0 3 Months 0.2
1 Year 12.8 1 Year 7.4 1 Year 5.2
Annualised Return (%) Annualised Return (%) Annualised Return (%)
3 Years 14.0 3 Years 15.0 3 Years 5.0
5 Years 13.4 5 Years 14.1 Since Inception 6.4
Since Inception 12.9 Since Inception 15.1
Strategic Asset Allocation
Sector Allocation Sector Allocation
5%
5% 20%
5% 5%
5%
5%
20%
30%
5%
15%
25%
15%
5%
10%
65%
10%
20% 10% 5%
15%
Equity
Fixed Income: HY
Consumer Discretionary Consumer Discretionary Fixed Income: IG
Consumer Staples Consumer Staples Commodities
Energy Energy Alternatives
Financials Financials
Healthcare Healthcare
Industrials Industrials
Information Technology Information Technology
Cash Telecommunication
08 |
Value orientated
investment philosophy
The Credo Multi-Asset Portfolios follow an evidence based approach to investing,
providing investors with diversified exposure to global assets through a selection of funds and ETFs.
Funds are selected using Credo’s in-house selection process and offered as four solutions
targeting various levels of equity exposure. Portfolios are available in both GBP and USD.
Performance Performance Performance
Return (%) Return (%) Return (%)
YTD -1.5 YTD -1.4 YTD -1.2
1 Month -1.5 1 Month -1.4 1 Month -1.2
3 Months 0.4 3 Months 0.6 3 Months 0.8
1 Year 7.2 1 Year 8.4 1 Year 9.1
Annualised Return (%) Annualised Return (%) Annualised Return (%)
3 Years 7.6 3 Years 9.0 3 Years 9.9
Since Inception 8.5 Since Inception 9.4 Since Inception 10.4
Strategic Asset Allocation Strategic Asset Allocation Strategic Asset Allocation
5% 5% 5%
5% 5% 5%
5%
15%
45%
15%
30%
70%
60%
15%
15%
Equity Equity Equity
Fixed Income: HY Fixed Income: HY Fixed Income: HY
Fixed Income: IG Fixed Income: IG Fixed Income: IG
Commodities Commodities Commodities
Alternatives Alternatives Alternatives
Performance figures are based on a notional portfolio, denominated in pound sterling, designed to track the holdings of the
Credo Best Ideas, Dividend Growth and Multi-Asset portfolios. Portfolios incorporate all additions and removals. Portfolios may not be fully
invested at a point in time and therefore can hold a portion of assets in cash. Performance is calculated before any fees (which can vary depending
on the level of service) but includes gross dividends, reinvested. Following additions or removals, each holding is rebalanced to the model weighting.
Source: Bloomberg pricing as of 31/01/2018 close. All portfolio performance is calculated using Bloomberg PORT, rounded to 1 decimal place.
Inception dates: Best Ideas Portfolio 14/11/2011, Dividend Growth Portfolio 28/12/2012 and Multi-Asset Portfolios 02/07/2014.
credogroup.com | 09