How We Keep Beating The Market
Next time you see someone walking around with a geeky smile from ear to ear, there’s an outside chance that he or she is a Heritage Wealth client who just received an investment performance update.
You see, our clients benefit from an asset allocation strategy that works. Really works. The Unicorn Fund, a staple in our strategy, has returned around 95% in 12 months and 190% over 2 years (that’s almost triple your capital in 24 months).
We are all about prioritising wealth creation for our clients, which means we invest funds with asset managers who we believe bring something special to the table. Instead of tall, fancy buildings with the massive advertising budgets, these managers focus on beating the market.
We encourage our clients to look beyond our borders. There’s a wide world out there, full of companies that can achieve high growth rates despite operating in lower inflation jurisdictions. The Unicorn Fund sees the S&P 1200 as its benchmark, so this is a truly global fund with a strategy of looking far and wide for the best opportunities.
This is particularly important when you consider that Moody’s has issued a growth forecast for South Africa’s GDP of just 1.1% in 2022. That’s lower than our population growth rate, which means our beautiful country will continue to struggle economically. It’s one thing to live here and enjoy the sunshine, but your money doesn’t have to live here with you.
The managers of this fund aim to achieve a 20% annual return in USD, which is an ambitious target to say the least. They focus on multi-year opportunities, seeking to achieve that return over a long period of time rather than in each and every year.
As evidenced by the returns above, they have far exceeded their lofty target. In fact, the 2021 target was already achieved by 08 Feb – over 20% in USD in 39 days!
They do this by investing in megatrends (like technology, healthcare and consumer consumption) rather than whatever the latest hot tip is. The best investments are in companies that will be the winners of tomorrow, provided the valuation doesn’t already reflect that reality.
Market cynics are quick to point out that many such companies already carry demanding valuations. They often point to the “unloved” section of the market as an alternative: companies that have fallen out of favour with investors and can’t get back into the good books despite releasing decent results.
The problem is that these companies are often a “value trap” – investors climb in believing they are getting a bargain, when actually they are simply paying fair value. Whether due to a market in terminal decline, or significant operational risks that don’t always come through in the numbers, there is usually a reason why something is cheap.
Chasing a value unlock (where such a company is genuinely cheap and could experience a sudden jump in price) is more of a tactical trading strategy than a long-term investment approach. Investing is about picking companies that will show strong returns over many years, not companies that might jump to fair value and then achieve mediocre returns thereafter.
Growth companies on higher multiples justify their valuations by being in the right place at the right time. With plenty of runway ahead of them to grow into attractive markets, they can reward shareholders if other supportive conditions exist, like a sound balance sheet and the right management in place.
Through focusing on modern business models and sensible fundamentals, the managers of the Unicorn Fund have achieved excellent returns for investors. At Heritage Wealth Partners, we are proud to have participated in the genesis of the Unicorn Fund and brought these returns to our investors since day one.