The South African asset manager which crushed the S&P 500
Vestact’s New York model portfolio has outperformed the S&P 500 by a substantial margin over the past decade, producing a compound annual return of 18.6% versus the index’s 11.1%.
This portfolio is heavily focused on stocks in the technology, healthcare, and consumer sectors in the United States, with a particular emphasis on large-cap companies.
Founded in 2002 by Paul Theron, Vestact has gone from strength to strength over the past two decades, growing its assets under management to over R10.5 billion.
The company actively manages assets in rands and dollars on behalf of private clients through individualised investment accounts.
This means that no two clients’ accounts look the same, with the New York portfolio being the company’s model fund.
This differs from a traditional asset manager, where an individual typically only receives a slice of a fund, owning shares in a unit trust or exchange-traded fund.
Theron is highly respected within South Africa’s financial services industry, despite not coming from a traditional finance background.
Instead, Theron is a trained engineer who graduated with a Master’s Degree in Energy Engineering from the University of Cape Town. He specialised in oil, gas, coal, and electricity.
After dipping his toes into energy policy, Theron quickly realised that he was much more temperamentally suited to be an entrepreneur.
Theron had some success, creating an online sports business which was bought by M-Net and became the foundation of the Supersport website.
He also played a part in starting South Africa’s first online stockbroker, Tradek, which was ultimately shut down and Theron has labelled it a disaster.
This was when he launched Vestact, which has shown tremendous growth over the past twenty years due to the outperformance of its portfolios.
The company is still based in Rosebank, with Theron believing that South Africa is among the best places in the world to live, but individuals should invest their money offshore for the best returns.
Crushing the S&P 500
Vestact’s New York model fund has crushed the S&P 500 over the past decade, with it outperforming the index by over 7% on a compound annual return basis.
This portfolio is heavily invested in US-listed large-cap technology companies, with some investments in the healthcare and consumer sectors.
Crucially, the company managed to invest in all of the Magnificent 7 – Apple, Amazon, Microsoft, Google, Meta, Tesla, and Nvidia – before mainstream hype caught on.
This drove much of the model portfolio’s outperformance, with it riding the wave of these companies’ outperformance.
Theron told Daily Investor that the best investment in the model portfolio has been its purchase of Nvidia stock at an entry price of $2.54 in March 2017.
Since then, the company has returned a whopping 5,746% since the beginning of March 2017, driven by increased demand for its hardware amid soaring interest in artificial intelligence.
Theron explained how the company makes these kinds of investments and manages to avoid selling them, thereby preserving the compounding process.
The first principle of equity investing is that the value of a stock is the sum of its future cash flows. But Theron said that no one can see around corners, and the future is inherently uncertain.
Stocks are risky assets and have the potential to go down, as the prices are not set in stone. They are formed in the market every day, at the midpoint between sellers and buyers.
Share prices reflect the prevailing mood about the future earnings of real-world companies, and those change over time.
Theron said that Vestact tries to buy quality companies and then be brave, and avoid the noise of the daily market news cycle.
Picking the right stocks is only half the challenge. Staying with them when they go through a bad patch is the other half.
Winners can emerge from established industries, but they are much more likely to arise in winning industries. They very rarely occur in industries which are in terminal decline.
Vestact says that it is looking for what it calls transformative investments – well-run companies set to change the world or benefit from a decisive, permanent shift in the economy’s structure, or the spending habits of consumers.
These are companies which Vestact says have the ability to double and redouble their sales and profits over the decades.
The asset manager does not trade in and out of holdings as the share price fluctuates, preferring inaction and patience.
Quoting Warren Buffett, the company says, “When we own portions of outstanding businesses, our favourite holding period is forever.”
The table below shows some of the holdings of Vestact’s New York model portfolio for large deposits.
| Company | % allocated |
| Apple | 10% |
| Microsoft | 10% |
| Amazon | 9.7% |
| 9% | |
| Visa | 9% |
| Eli Lily | 8.1% |
| Nvidia | 8% |
| Meta | 7.7% |
| Stryker | 7.6% |
| Amgen | 6.1% |
| Crowdstrike | 5.2% |
| Netflix | 4.8% |
| Tesla | 4.8% |
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