In the past three weeks, I have attended investment briefings by four well-known asset management companies in South Africa. The four fund managers are PSG, Allan Gray, Coronation, and Prudential. Allan Gray ranked first and PSG ranked second in the Raging Bulls Award. Prudential Prudential is the number one Larger Manager according to Morningstar, it also celebrates 25 years of asset management in South Africa this year. Coronation is a JSE listed fund manager that celebrated asset management in South Africa for 25 years last year. I will tell the reader my summary first: 1. These four fund managers have excellent long-term track record. Many of their funds are suitable for different types of investors, ranging from short-term high-yield, secure capital funds, to equity funds and multi-asset allocation funds for long-term growth. 2. No one has escaped the effect of political corruption (namely State Capture) in South Africa in the past five years, which has led to the economic downturn and the flat stock market. Fund managers have also been affected by the ongoing US-China trade war on the global economy and investment market since last year. The annualized return on equity funds over the past five years has been 5%. 3. Looking ahead, all fund managers are optimistic about the return on the South African stock market in the next three to four years, Japan and emerging markets such as China. At this stage, they also like the high yield on South African bonds, giving investors a yield of 9% to 10%. They are negative on European and American bonds, especially the negative interest rate on 10-year German bonds. Investors investing in German bonds are destined to receive less than the principal after 10 years. 4. Allan Gray and Coronation are South Africa's largest fund companies, with large amounts of assets under management and relatively conservative investment style. Prudential and PSG manage assets on a smaller scale, and they are able to be more flexible. Prudential always likes some exposure to listed property, and PSG is now favoring small and mid caps in South Africa and certain Japanese companies. ***** I have been dealing with asset management companies in South Africa for nearly 20 years. I have seen the growth and changes of the asset management industry, and experienced the ups and downs of the investment market: The Dot Com bubble in 2000, the global financial crisis in 2008, the European debt crisis, the emerging market crisis in 2014, and the US-China trade war from 2018 to the present. In South Africa we have seen the shocking firing of Minister of Finance Nene in 2015. During this period, South Africa's asset management industry flourished and there are now more than one hundred fund managers. It is very challenging in choosing the funds to invest in, as the market changes, portfolio managers change, and many funds appear and disappear in these two decades. However, patient investors investing in good funds of reputable fund managers will have been rewarded over the long term. Let compound interest be your good friend and work for you. 1. PSG Asset Management The PSG Asset Management's investment philosophy is 3M – Moat, Management and Margin of Safety. Moat is a company's competitive advantage, that acts as high barrier to entry, such as technology, systems, talent, and markets. Management refers to the track record of the company's management and how they allocate the company's funds. Margin of safety refers to whether the stock price is lower than the assessed intrinsic value of the company, this provides investors with downside protection against the risk of over-estimated intrinsic value. PSG has a 20-year history, was previously run by successful manager Jan Mouton and then handed over to Chief Investment Officer Greg Hopkins, who has 18 years of experience. Shaun le Roux has been with the company 18 years, managing PSG Equity Fund and PSG Flexible Fund. However, it has lost two senior portfolio managers in the past three years, the performance of new managers Justin Floor and Dirk Jooste remains to be seen. PSG's philosophy is to find investment opportunities in areas that everyone hates, and to avoid everyone's favourite stocks. This is value investing. Therefore, PSG currently does not invest in technology companies or defensive stocks, but favours South African small and mid caps. Below are the latest PSG investment update videos: How we think about and manage risk Is SA Inc even investible? Opportunities in local markets Opportunities in global markets 2. Allan Gray Allan Gray has a 45-year history in South Africa and its sister company Orbis has a 29-year history of managing global assets in Bermuda. Both companies share the same founder, Allan Gray, and have the same value investment philosophy. Like PSG, it is also a contrarian investor, looking for investment opportunities in areas that people don't like. However, because of the large scale of assets under management, Allen Gray must invest in large blue chip companies. Allan Gray's strengths are equity research and asset allocation. Its weakness is its long-term dislike for real estate, which currently works in its favour, but it missed the long-term listed property boom before 2018. Allan Gray's portfolio managers are pretty stable, with an average of more than a decade of experience at Allan Gray, giving investors invested in their funds certainty and peace of mind. Allan Gray pointed out that the total assets under management of the South African fund industry in the past three years were virtually flat, indicating that the South African stock market has been dull in the past five years and that the general public under economic and tax strains has no money to invest more. It is no surprise that, over the past three years, The fund category receiving the most new money flows is money market and income funds. Because of the lacklustre returns from the South African stock market in the past five years, investors have turned to income funds for high yields. Indeed, the chart below confirms the equity return has been below the cash return over the last five years. But the stock markets do work in cycles. If history repeats itself, the return of the SA stock market in the next three to four years will far exceed the bank deposit interest rate. The chart above shows that during the past 17 years, between 2002-03 and 2012-13, the five-year JSE total return was lower than the deposit rate. It is also the case from the second half of last year. However, after the stock market rebounded, the return for the next three to four years was better than the bank deposit. According to Allan Gray's data analysis, cash deposits only has a 13% chance of outperforming the stock market in the next four years. In other words, the stock market has an 87% chance of outperforming cash deposits in the next four years. The odds are now in investors' favour to hold and enter the stock market, not to exit. Allan Gray's foreign investment is handled by its sister company Orbis. Orbis has long-standing admirable performance, but it has fallen 20% in the last one and a half years, making it a bottom performer last year, and slightly behind its sector average in the past five years. This is due to its contrarian investment style, sometimes allowing it to greatly exceed the market, and sometimes falling far behind. I remember that in 2012-13, Allan Gray also had a period of under-performance, but it laid the foundation for its subsequent performance in 2014-2016. In the past year, Orbis has more stocks losing money than stocks that make money. What has happened? According to its analysis, the top five detractors of performance are as follows: Orbis spent some time explaining the largest detractor XPO. XPO is a US logistics and transportation company that aims to help companies enter the e-commerce sector and compete with Amazon. It is committed to the vertical integration within the logistics industry, offering small and medium-sized enterprises one-stop service. It acquired a truck fleet company Conway four years ago. In the second half of last year, the profit announcement disappointed, then short-sellers attacked the company with damaging reports. Its stock price subsequently fell 30%. Orbis met with the management and thought that the founder Bradley Jacobs and his management team were still very good, and the market was wrong in punishing the stock, so it increased its investment in XPO. Abbvie is a US pharmaceutical company, and Orbis is convinced of the future of the US healthcare industry, so it has added another pharmaceutical company, Celgene. After reviewing the investment case for Netease, it has increased its holding, now it is the largest position in the fund, with a weighting of 9.1%. PG&E is an electricity and gas company in California, USA, it sold out at a loss. It also sold out Symantec, an internet security company, at a loss. For the Chinese market, Orbis is optimistic about the future of tech companies, mainly holding shares in NetEase, Tencent and Autohome. Orbis has a long-term track record, I suggest investors buy on current dips. 3. Coronation Asset Management Coronation is 26 years old in South Africa and is South Africa's largest listed fund manager. I was invited to participate in the annual Face to Face event in Cape Town, as due diligence, and listened to its economist and 8 portfolio manager briefings throughout the day, from Top 20 Fund, Balanced Plus Fund, Strategic Income Fund. Capital Plus, Balanced Defensive, Property, Global and Emerging Markets, The day ended with a Q&A session with Chief Investment Officer Karl Leinberger. Coronation employs 300 people, one-third of whom are investment analysts and fund managers, a strong investment management team in South Africa. It follows a valuation driven investment process and invests in undervalued companies or assets. The difference between Allan Gray and Coronation is that Coronation is more likely to invest in riskier industries in the stock market. In recent years, it has invested in mining stocks, which initially caused the its equity funds to fall, then helped investors make money when share prices recovered and rose. Coronation also likes real estate, and for a long time there has always been an exposure to listed property in South Africa and abroad. However, Coronation has also stepped on many of the so-called landmine stocks in recent years, such as Steinhoff and MTN, so the returns from its equity exposed funds have been market average for the past five years. The Coronation investment management team is stable and reputable. They have been incorporating ESG (environmental, social, governance, environmental, social and corporate governance) principles in evaluating investment opportunities for many years. On the whole, their standouts are income-based funds, where risk management is robust, and opportunities are captured for clients to enhance yield. the other area is global Emerging Markets. Many analysts visit the CEOs of listed companies around the world, they really work hard to find investment opportunities for clients. Other funds are expected to have similar returns relative to other larger managers in the long term. 4. Prudential Prudential Prudential Investment Management celebrates 25 years in South Africa. Similar to Coronation, the valuation investment method is also used, but because it belongs to Prudential, a global financial services group headquartered in the UK, it tends to have a more macro, top-down approach, to assess the relative value of each country and asset class, thereby overweight the undervalued assets and underweight the overvalued assets. It does not take big bets, but rather a large number of small bets. It uses a team-based investment management model. Its investment performance is more market neutral, unlike Coronation, which sometimes experiences large ups and downs due to its conviction calls. Although the investment management team is not large, it is also very stable. Chief investment officer David Knee has more than 20 years of investment experience, mainly fixed income assets, worked in the UK and moved to South Africa in 2008. Head of Equity Johny Lambridis is an actuary and has many years of investment management experience. Prudential's macro data analysis has three points that caught my attention: First, China and India accounted for about 50% of global GDP before 1820. The G7 industrial countries rose rapidly during the industrial revolution of the 19th century, and reached the peak of 49% of global GDP in 1940. The rise of China and India over the past 40 years is just a return to its former status. It now accounts for 30%, which is equivalent to 32% of G7 countries. 2. The global population continues to grow, but the growth rate is slowing. The global population is expected to reach 11 billion in 2100. The population continues to be aging, which has a huge impact on social welfare, government borrowing, caring for the elderly, and political landscape. 3. The rise of China is closely related to the liberalisation of world trade. The left axis of the chart below shows the world trade as a percentage of GDP, and the right axis is the growth rate of China's economy. World trade has increased from 25% in the 1960s to nearly 60% in 2008, but since then it has plateaued. The ongoing US-China trade war is threatening world trade, which in turn will slow down China's economic growth. Prudential's leading funds are Equity Fund, Balanced Fund, Inflation Plus Fund, and Enhanced SA Property Tracker Fund. These funds have outperformed the average fund in their respective sectors over the long term. However, Inflation Plus Fund has fallen behind in the past three years.
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Summary The US-China trade war that began more than a year ago has been hurting the economy and trade of the two largest economies of the world, while also disrupting and re-shuffling the global supply chain. In addition, the United States hiked interest rates four times last year, increasing the rate to 2.25%, attracting funds back to the United States, first hitting emerging markets, and then hitting the US stock market. The US stock market had the second worst rate of return in December in the past 100 years (-7.8%). The South African asset management companies that I rate highly agree that the South African stock market and global emerging markets are at or near historical lows, and many good investment opportunities are found at this stage. We recommended long-term investors to continue to have exposure to growth (stock) assets, which could provide a 60% return over the next three years. *** Global The US-China trade war has been more than a year since the US declared it last year. President Trump of the United States believes that China was competing unfairly. The US trade deficit with China is huge and continues to expand. China infringes on intellectual property rights, as well as providing subsidies to public and private companies. Sanctions include imposing 10% tariffs on imported products from China, lawsuits and measures against ZTE, Huawei and other Chinese telecommunications companies, and containing Chinese companies in the 5G sector. From the recent statistics on Chinese economic growth and import and export volume, China’s exports in February fell by 20.7% from the previous year to US$135 billion, the largest decline since February 2016, indicating that the US-China trade war is having a significant negative impact on China. China's stock market fell 25% in 2018, but since the start of 2019, China's stock market has risen by 25% due to the recovery of global investor confidence and the Chinese government's monetary easing. In 2018, the US stock market was steadily rising, until it experienced a sharp 7.8% drop in December and a 6.1% decline over the year, the first annual negative rate of return since the 2008 global financial crisis. However, it has risen 11.48% since the beginning of this year. South Africa After Cyril Ramaphosa was sworn in as new president at the beginning of last year, there were high expectations from all sectors, which was termed Ramaphoria. However, the US-China trade war, the emerging market currency crisis, the ANC party’s two-faction fighting have caused the high spirits to evaporate quickly. The successive commissions of inquiry have opened up the lid on the rampant corruption and briberies during the Zuma era, so now we know that the National Treasury was hollowed out, and the infrastructure is crumbling. Eskom frequently broadcasts news of mismanagement, energy crisis and implements load shedding, which darkens investor confidence. South Africa’s economic growth rate last year is only 0.8%, and this year is not going to be any better due to the Eskom factor. South Africa's stock market fell 8.5% in 2018, the first annual negative rate of return since the 2008 global financial crisis. If former President Zuma sees the stock market return history, he will brag that, during his presidency, the stock market has risen every year and has never fallen! This is a bit ironic. South Africa's stock market has risen 6.3% since the beginning of this year. The four South African fund managers I rank most highly, based on my long-term observation, analysis and evaluation, agree that 2018 was a tough year for all investors: they lost money no matter where they put their money (except bank deposits and bonds). PSG pointed out that 2018 was a year of trying to avoid landmines: In 2018, the following well-known listed companies have brought huge losses to investors. The South African stock market is now near the bottom of the five troughs experienced over the past 40 years. Coincidentally, Coronation also has the same analysis: However, they also agreed that 2019 is a year of turnaround. The PSG research report pointed out that the annualized rate of return for the three years after the past five lows was as high as 24.3%, that is, the cumulative rate of return for three years was 92%. Even using the lowest annualized return rate of 16.4%, the investor's 3-year cumulative return would reached nearly 60%. This is the so-called reversion to the mean. Even if the South African economy does not do much, by going from the bottom of a market cycle to the average of a market cycle, with a little boost of investor confidence, the investors could receive this kind of return. PSG Asset Management is currently positive on the following asset classes (marked by green): South African domestically focused stocks, government bonds, overseas stocks and cash. Even though 2018 was a disappointing year for investment returns, we recommend investors not to give up on the stock market; continue to hold stock positions in the medium and long term, with exposure to South Africa and offshore markets. Allocate positions in shares, bonds and cash. During this trying time, I chose this pearl of wisdom from Warren Buffett to remind myself and investors:
Now is not the time to give up; it is probably the best investment opportunity since the 2008 global financial crisis. Coronation Strategic Income Fund: Conservative fund for short term investors requiring an immediate income. What is the fund’s objective? Strategic Income aims to achieve a higher return than a traditional money market or pure income fund. What does the fund invest in? Strategic Income can invest in a wide variety of assets, such as cash, government and corporate bonds, inflation-linked bonds and listed property, both in South Africa and internationally. As great care is taken to protect the fund against loss, Strategic Income does not invest in ordinary shares and its combined exposure to locally listed property (typically max. 10%), local preference shares (typically max. 10%), local hybrid instruments (typically max. 5%) and international assets (typically max. 10%) would generally not exceed 25% of the fund. The fund has a flexible mandate with no prescribed maturity or duration limits for its investments. The fund is mandated to use derivative instruments for efficient portfolio management purposes. Who should consider investing in the fund? Investors who are looking for an intelligent alternative to cash or bank deposits over periods from 12 to 36 months; seek managed exposure to income generating investments; are believers in the benefits of active management within the fixed interest universe. What costs can i expect to pay? An annual fee of 0.85% (excl. VAT) is payable. Fund expenses that are incurred in the fund include trading, custody and audit charges. All performance information is disclosed after deducting all fees and other fund costs. We do not charge fees to access or withdraw from the fund. How long should investors remain invested? The recommended investment term is 12-months and longer. The fund’s exposure to growth assets like listed property and preference shares will cause price fluctuations from day to day, making it unsuitable as an alternative to a money market fund over very short investment horizons (12- months and shorter). Note that the fund is also less likely to outperform money market funds in a rising interest rate environment. Given its limited exposure to growth assets, the fund is not suited for investment terms of longer than five years. Source: Coronation What is the fund’s objective? Strategic Income aims to achieve a higher return than a traditional money market or pure income fund.
What does the fund invest in? Strategic Income can invest in a wide variety of assets, such as cash, government and corporate bonds, inflation-linked bonds and listed property, both in South Africa and internationally. As great care is taken to protect the fund against loss, Strategic Income does not invest in ordinary shares and its combined exposure to listed property (typically max. 10%), preference shares (typically max. 10%), international assets (typically max. 10%) and hybrid instruments (typically max. 5%) would generally not exceed 25% of the fund. The fund has a flexible mandate with no prescribed maturity or duration limits for its investments. The fund is mandated to use derivative instruments for efficient portfolio management purposes. Important portfolio characteristics and risks: Strategic Income is tactically managed to secure an attractive return, while protecting capital. Its investments are carefully researched by a large and experienced investment team and subjected to a strict risk management process. The fund is actively positioned to balance long-term strategic positions with shorter-term tactical opportunities to achieve the best possible income. While the fund is managed in a conservative and defensive manner, there are no guarantees it will always outperform cash over short periods of time. Capital losses are possible, especially in the case of negative credit events affecting underlying holdings. How long should investors remain invested? The recommended investment term is 12-months and longer. The fund’s exposure to growth assets like listed property and preference shares will cause price fluctuations from day to day, making it unsuitable as an alternative to a money market fund over very short investment horizons (12- months and shorter). Note that the fund is also less likely to outperform money market funds in a rising interest rate environment. Given its limited exposure to growth assets, the fund is not suited for investment terms of longer than five years. Who should consider investing in the fund? Investors who are:
To invest in Coronation Fund, please contact Kevin or Ray, email: invest@daberistic.com tel no: (011 658-1333) Source: Coronation What is the fund’s objective? The Global Emerging Markets Fund aims to give investors access to the best opportunities in emerging equity markets. The fund actively seeks out undervalued shares to maximise long-term growth. Our intent is to outperform the emerging equity benchmark over all periods of five years and longer What does the fund invest in? The fund invests in the shares of companies which are either based in emerging countries, or earn a significant part of their revenue from emerging economies. It will be fully invested in shares at all times. The fund is mandated to use derivative instruments for efficient portfolio management purposes. Important portfolio characteristics and risks Global Emerging Markets will only invest in shares we view as being attractively valued and which may offer superior long-term investment growth. The fund’s share selection is the result of rigorous international research conducted by Coronation’s investment team. While we have a disciplined approach to reducing risk, shares can be volatile investments and there is a meaningful risk of capital loss over the short term. Emerging markets are generally viewed as more risky than developed markets. Global currency movements may intensify investment gains or declines. If you would like to invest in Coronation Fund, please contact Kevin or Thato, email: invest@daberistic.com tel no: (011 658-1333) Source: Coronation The primary objective in investing is to deliver the best risk-adjusted returns possible. Since return and risk are two sides of the same coin, an interrogation of one without a full understanding of the other is meaningless (and dangerous). How does coronation manage risk? Managing risk is not something that you should have to clear at the final hurdle in an investment process. We believe it needs to be woven into the DNA of the process, as we endeavour to do in ours. In the research process: Through a strong valuation discipline (i.e. paying less for assets than they are intrinsically worth) and a long-time horizon (i.e. looking through the cycle). Together, these are a great defence against the risk of getting sucked in at the top of the cycle, when prices are high and the risk of permanent capital loss is pronounced. Click here to Read FAQ. To find out more on the Coronation funds that we recommend, please contact Kevin or Thato, email: invest@daberistic.com tel no: (011 658-1333) Source: Coronation At various stages of one’s life, financial needs may differ. For this reason it is important to change financial strategies and instruments used to fulfill those needs. The investment behaviour of women differs to that of men. Women often feel comfortable with “secure” and “predictable” investments, explained Christelle Louw, advisory partner at Citadel. “The problem is that these investments mostly do not offer the required performance after inflation and tax to achieve their financial goals,” she said.
For this reason, equities are becoming an important element to include in their portfolios. This is also true as women become more sophisticated investors, with surplus income to invest. Over the past few years women have been playing a bigger and more prominent role in business and their earnings are increasing. This is contributing to their empowerment. The global income of women will grow from $13trn to $18trn over the next five years worldwide, according to the CFA Institute. Women are also living longer than men. According to the World Health Organisation's 2015 data for global life expectancy, women will live five years longer than men. More women are seeing the need for inflation-beating investments to sustain their lives once their partners are gone. “It is important to ensure that they have made financial provision beyond the life expectancy of their husband or male partner,” said Louw. Click to read more To review your investments and to ensure they still meet your needs, please contact Kevin or Thato, email: invest@daberistic.com telephone: (011)658-1333 Source: Fin24 |
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