Boutique equity manager Greencape Capital has scored a double ‘gold’ rating, with Morningstar giving Greencape’s Broadcap and High Conviction Australian equity funds its top gong. Morningstar says the funds are “outstanding strategies”, with a number of strengths, including a talented investment team, straightforward process and excellent portfolio construction methodology.
Morningstar says portfolio managers Matthew Ryland and David Pace are among the best stock-pickers in the Australian market.
Ryland and Pace manage small portfolios. The Broadcap fund has $310 million of funds under management and the High Conviction fund $364 million. Greencape was launched in 2006.
Morningstar says the investment team uses a straightforward fundamental bottom-up approach, focusing on a company’s business franchise and management. Companies are assessed on four factors: shareholder stewardship, business evaluation, market milestones and valuation.
“No stone is left unturned when the team decides to research a stock, even if that means undertaking an extremely extensive travel program,” it says.
The Broadcap fund’s investment universe includes S&P/ASX 100 companies, plus some ex-100 stocks and up to 10 per cent of the portfolio in overseas stocks.
The strategy has outperformed the S&P/ASX 200 Index in nine of the past 10 years. Active share is typically 45 to 55 per cent.
Since inception in 2006, the fund has produced an average total return of 9.7 per cent a year, compared with the 6 per cent average annual return of the index over the same period.
Over the five years to the end of November, the fund has produced an average return of 13.4 per cent a year, compared with 10.6 per cent for the index.
Over the past three years it has returned 11.4 per cent a year, compared with an index return of 8.7 per cent, and over the past year it has returned 20.9 per cent, compared with a 14.6 per cent index return.
Its three-year risk measure is a standard deviation of 11.1 per cent, a little below the market risk of 11.6 per cent. “It has protected capital better than most during market-wide slumps,” Morningstar says.
While the Broadcap fund holds around 60 stocks, the High Conviction fund has a more concentrated portfolio, with up to 40 stocks. Like the Broadcap fund, it follows a bottom-up process that avoids big sector or thematic bets.
“It has a consistency that few have matched,” Morningstar says. It has outperformed the index in each year since it was launched in 2006, except for 2012 and 2016.
Since inception, it has produced an average return of 9.7 per cent a year, compared with the index return of 6 per cent a year over the same period.
Over the five years to the end of November it has returned 12.4 per cent a year, compared to the index return of 10.6 per cent a year.
Over the past three years it has returned 10.3 per cent a year, compared with the index return of 8.7 per cent a year. And over the past year it has returned 21.4 per cent, compared with a 14.6 per cent index return.
Its three-year risk measure is a standard deviation of 11.2 per cent.
Stocks that have contributed to the High Conviction fund’s performance over the past 12 months include A2 Milk, Brinks and Computershare. The Broadcap fund had positive contributions from A2 Milk and Costa Group.