Iain Anderson says that the move away from tracking the FTSE/JSE Dividend Plus index is not ‘trying to become something we’re not’.
Sygnia’s proposal to change its dividend strategy to an active equity fund and charge a performance fee is not a deviation from the firm’s philosophy, according to the firm’s head of investments, Iain Anderson.
Last year, Sygnia proposed that the fund, which tracks the FTSE/JSE Dividend Plus index change its policy to become an active equity fund, which will necessitate a name change to the Sygnia Divi fund.
‘The fund is one of our longest-serving unit trusts, but it’s never attracted a lot of money,’ Anderson (pictured) told Citywire South Africa an in interview. ‘So, we decided that we either had to shut the fund down or make the change. We know people love the fund and there are not many options for dividend investors in South Africa, so we decided to try to make a change.’
The fund launched in 2013 but only has R180m in assets under management.
The switch to an active strategy does not, however, mean that Sygnia has suddenly discovered a penchant for stock picking.
‘We do believe in the fund, and in the index,’ Citywire + rated Anderson said. ‘But for an index fund to be viable, it needs to have low turnover. This index unfortunately has a massive turnover. The turnover in the portfolio last year was 100%. That just leads to massive trading costs. By comparison, the Top 40, which had more turnover than usual last year because of the Naspers/Prosus action, only had 10% turnover.
‘Intrinsically, it is a great fund. So we will still be starting with the index and just being smarter about it. We will optimise the portfolio to keep the turnover as low as we reasonably can. But in order to do that, we can’t call it an index fund anymore. From a regulatory point of view, we have to call it an active fund.’
It will therefore still maintain exposure to the same risk factors, particularly value.
‘The characteristics of the fund are not going to change,’ Anderson said. ‘We are not going to start looking at balance sheets and income statements and making active decisions other than around systematic optimisation. We are not trying to become something we’re not.’
Fee change
Sygnia has also proposed that the fund carry a zero management fee, but that it will charge a performance fee on outperformance relative to the FTSE/JSE Shareholder-Weighted All-Share index (Swix).
‘We’ve also introduced zero fees on the money market and bond funds,’ Anderson said. ‘It’s all part of a campaign to be the lowest-cost provider in South Africa. But including a performance fee is the only reasonable way we could do it in an equity fund.
‘It is a cyclical fund, so there are going to be times when it outperforms massively, and investors will pay a portion of that, but there will be a cap on it. And when it is not performing, investors won’t have to pay anything.’
Anderson acknowledged that performance fee structures are inherently complex, but that Sygnia is trying to keep it as simple as possible by maintaining the 0% management fee. The cap on the fee is 3%.
The window for responding to the ballot on the proposed changes closed yesterday.
Patrick Cairns, Citywire
Published: 02 February 2022