How this outperforming equity manager turned things around

Apr 6, 2023 | News

The Personal Trust Equity fund has been in the top quartile of its category over the past three years, as PM Mark Huxter has reworked its process.


For most of its history, the R764m Personal Trust Equity fund was a pedestrian performer. Since its launch in July 2009, it has returned an annualised 8.8%, compared to an annualised 13% for its benchmark – the JSE All Share Total Return index (Alsi).

More recently, however, the performance has been far more impressive. The fund is ranked 16th out of 201 portfolios in the Citywire South African equity category over 12 months that ended February 2022 and 35th out of 184 funds over three years.

The fund returned 12.5% over the year ended February 2023, compared to 6.2% for the Alsi. Over three years, the fund gained an annualised 19.8% compared to the Alsi’s 19.5% gain.

‘When I joined Personal Trust, this fund was bleeding money because the performance was not top drawer,’ portfolio manager Mark Huxter told Citywire South Africa in an interview. He joined the company in 2015 after many years in stockbroking.

He previously worked for Barnard Jacobs and Mellet, HSBC and Simpson McKie.

Sound investment process

Citywire + rated Huxter, who manages the portfolio with equity analyst Anda Tyali, said that he turned the fund’s performance around by developing a sound investment process and adhering to a disciplined approach to how the portfolio selects counters.

‘We have built a model, which allocates the highest weight to free cash flow,’ he said.

Huxter (pictured below) also looks at the strength of a company’s balance sheet and its fundamental stability. In addition, the fund has an ESG matrix, and Huxter looks at a company’s board structure, diversity, and compensation. He also uses the Beneish Model Matrix, which is an eight-variable model he uses to identify the likelihood of a company using financial engineering.

He is cautious about illiquid shares and shies away from them.

Huxter also recently received approval from the Personal Trust investment council to broaden the fund’s mandate to include offshore securities.

‘Eighteen months ago, I pushed the board to allow us to do more than invest in South African equity. We can now move funds offshore. As a result, the fund is building a position in the iShares Value ETF,’ he added.

At the end of February, the fund invested 81.9% of its assets in local equities, 5.5% in foreign equities and 3% in local property. In addition, the fund had 9.6% of its assets invested in cash.

Huxter said the fund had a high cash allocation because he believed risky assets could falter over the coming months.

‘Therefore, cash holdings (in rand and US dollars) are a hedge against fund withdrawals, market drawdowns and rand volatility. We believe South Africa is in recession, and the US will probably be in a mild recession by year-end; so, we are keeping powder dry,’ he added.

He said he uses eight thematic filters to drive the portfolio’s returns.

‘First, the outlook for South Africa and the rand. Second, the US Federal Reserve and the US dollar. Further drivers are energy, the commodity complex, demographics, technology, and business clusters,’ Huxter added.

‘Last but not least is ESG. I focus solely on governance because I think that is where I can add value,’ Huxter, who is style agnostic, said.

Thematic approach

‘I believe this strategy should revolve around an underlying “thematic approach”, which will give rise to the correct asset allocation,’ he added.

Huxter believes the most successful investors will be those who develop a well-defined strategy, align their portfolios with it, and constantly test its robustness over the next decade. Adopting a thematic-investing approach can yield three benefits for the fund.

‘First, it allows the fund to generate alpha at scale. Second, the more systematic investment process and in-depth research required for thematic investing build a deeper understanding of the underlying drivers of value creation and risk.

‘Third, it provides the fund with a dynamic and flexible way to validate and express hunches by applying a forward-looking lens to investment decisions. One needs to look at projections of where the portfolio will be five years from now,’ Huxter said.

He added the fund currently is underweight South African banks. He prefers exposure to non-deposit-taking institutions within the financial sector, as Huxter expects them to increase their performance as their AUM grows.

‘Insurers can increase their earnings post-Covid-19 faster than South African banks,’ he added.

‘Combine this with Eskom’s inability to provide reliable power, deteriorating food security and the ongoing decay of road, rail, and port networks, and this could be a perfect storm for South African banks,” Huxter said.

Bullish about energy

He is bullish and overweight energy stocks and holds Sasol shares and units in the iShares Energy ETF.

Huxter said he was bullish about energy because of the unprecedented technological innovations in the industry, energy transition costs and ESG restrictions on the sector.

‘We have adopted a “pragmatic” approach given the resulting imbalance between supply and demand during the transition phase. Given the reality of the transition’s duration and resulting imbalances, total returns are compelling,’ he said.

When Huxter joined Personal Trust in 2015, it had funds under administration of R13.5bn; today, that is approaching R30bn. Personal Trust’s founders launched the company in December 1980. It has 146 staff.