In it for the long run

Andrew Cormack

Wealth Management Business Credo has seen consistent returns since its inception in 1998, with its success being recognised earlier this year with a Raging Bull Award for Offshore Manager of the Year. In addition, UK-based Lead Manager of the Credo Dynamic Fund, Rupert Silver, and his Co-manager, Ben Newton, have both been awarded a maximum AAA manager rating by Citywire. The Dynamic Fund (a multi-asset sterling fund) has also been upgraded to a maximum 5 Crown Rating by FE Fundinfo.

Andrew Cormack, Head of Investment Distribution at Credo’s South African office, spoke to MoneyMarketing about the success of the business.

The South Africa/Credo relationship

While Credo is based in the UK, it’s always had a footprint in South Africa because the founding directors and shareholders were, and still are, South African. When it was established, South Africans were looking to externalise some of their wealth, and found it not just easier, but preferable to work with people they knew. “We’ve always had a large number of clients, mostly high-net-worth individuals in South Africa, who are looking to invest overseas,” says Cormack. “Approximately half of our accounts, by number not by value, are South African. We see South Africa as our heritage market.”

Offshore proposition

All of Credo’s investment propositions are offshore. “We have fixed-income portfolios and equity portfolios that we run,” explains Cormack. “We also run multi-asset managed portfolios, also called model portfolios or MPS. On the fund side, we have a sterling multi-asset fund (Credo Dynamic), and we have our flagship global equity fund (Credo Global Equity), which is available in dollars and in sterling.”

In 2020, Credo launched a feeder fund, the only onshore domestic product available in rand. The feeder fund rolls up 100% into the global equity fund, so gives South Africans the ability to access that strategy and have exposure, but with rands.

Clients can choose to send money directly overseas and invest in the underlying fund, or they can invest onshore if that’s their preference. Performance will be almost the same, plus or minus exchange rate movements.

“We don’t follow a benchmark. We report against the MSCI World Index, but we don’t mirror those sorts of geographic or even sector exposures,” says Cormack. “Everything we do is a bottom-up fundamental stock picking exercise.”

The investment strategy

The company believes in investing in people and client relationships, and that also reflects in how they invest money. “We’re in it for the long run,” says Cormack. “We’re not looking to time the market. We know there will be periods of time where our investment strategy may underperform, but we stay the course. Credo has a value bias when we’re talking about our equity investing and that style certainly has seen some ups and downs of in recent years.”

Over the last three to four years, he points out, the market has been driven primarily by growth stocks. People have been looking at the first six months of performance of the S&P 500 or the NASDAQ. “It’s mostly driven by 10 stocks. In fact, something like 90% is driven by what they call the “Magnificent Seven”: Amazon, Tesla, Facebook, etc. The other 10% is driven by the 493 other stocks. Our investment style may not have produced the same kind of short-term results as a strong growth-oriented investor, but that’s fine because we know there will be cycles. People choose to invest with us for the long term, and we manage money prudently and take that stewardship seriously.”

While Credo is a value investor, it doesn’t see itself as a ‘deep’ value investor. “We don’t buy things just because they’re cheap. We always look to buy good quality businesses that have robust business models and positive cash generation,” says Cormack.

“We’re not buying just because we want the P/E multiple to increase. In fact, with some businesses we don’t attach a lot of value to the P/E re-rating, but we think they are producing growth in earnings per share and producing dividends build, so it’s a good business to own. And if the multiple does increase, that’s the cherry on top.  That said, we will always seek to buy at a discount” he says. Over the last five years, Credo’s performance has been driven by that: buying good companies that continue to deliver as they go through the cycle. “Our success is because of consistency of returns, as well as the actual level of the returns.”

One of the biggest positions in the Credo Global Equity Fund is Microsoft. It’s not a classic value stock and was bought at a time when it was trading at a discount to what they deemed to be its intrinsic value. It was seen as a great opportunity on a good business at a relatively cheap price. “Microsoft is the gift that keeps on giving,” says Cormack with a smile. “It’s an example of a product that is useful. It has value. I think that differentiates it from other companies and products where people buy because it’s the flavour of the moment. You might make money off those if you’re able to time the market, but that’s a very rare skill. In fact, it may even be more luck rather than skill.”

Credo’s Global Equity Fund is global in the sense that they buy listed equities from around the world. There is a preference for large-cap liquid stocks that they can move in and out of freely. “We don’t want to be stuck in illiquid untradeable stocks. The larger companies have better price discovery, they generally have more information disclosure and tend to be more heavily regulated, so the pricing is tighter,” says Cormack. “There’s less uncertainty over the financial information, where if you had some mid-market company that’s listed in an obscure jurisdiction, you may not be able to put as much faith in the numbers that are being produced for investors in South Africa.”

Also investing in sterling

One of the challenges is that most South Africans, when they invest offshore, limit themselves to investing only in dollars. They don’t immediately think of sterling, unless they’re emigrating or have children studying abroad. “I did an investigation last year, just based on ASISA data, to see how many section 65 sterling-based multi-asset funds are available for sale in South Africa. It was something like 28 share classes,from  16 funds. Of those 16, only three were beating their benchmarks. The Credo Dynamic Fund was one of them.”

Excellent financial advice

“Often people lose sight of what doing well means,” Cormack says. “They think it’s about exclusively doing better than other people. A great South African financial advisor, Shaun Clacey from Providence Wealth, always said the goal of a financial advisor is to determine the client’s needs and objectives, to get them there, and to help them to ignore what everyone else is doing – because they have a plan. And as long as they’re achieving the plan, does it matter how well or how badly everyone else is doing?” When it comes to investing, he explains, we get so obsessed with how much other people are making on Bitcoin or Tesla. “We hate the idea of being left behind, but if we are still generating wealth in real terms, above inflation and meeting our investment objectives, I think we need to relax a little bit,” Cormack says.

“What’s special about Credo is that we invest alongside our clients. We’re shareholders and it’s important that we have integrity. Credo is Latin for ‘I believe’, and it was chosen deliberately because not only does it mean ‘I believe in what we’re doing’ but also that ‘We want our investors to believe in us’,” he concludes.

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