Local unit trusts have delivered contrasting returns so far this year. Even funds that carry the ‘value’ label have had varying returns, with John Biccard’s Investec Value giving 11,1%, and Nedgroup Investments Value less than 1%.
The best performer overall, with a 13,9% return, was Sanlam Investment Management (SIM) Top Choice, a focused equity portfolio modelled on the Coronation Top 20 Fund, which in turn has given clients a respectable 9,2%.
Fund manager Patrice Rassou says the team at SIM has created an investment process that fine-tunes the risk-return trade-off to deliver optimal risk-adjusted returns. ‘We’ve been truly contrarian in our approach, buying beaten-down SA Inc stocks after the huge sell-off in 2008.’
One such contrarian bet paid off handsomely. ‘We accumulated a position in Impala Platinum (Implats) three years ago, when everyone thought the platinum sector was dead because of electric vehicles,’ Patrice explains.
SIM identified that Implats would close nine of its 13 old-generation shafts and open two low-cost ones. The market missed this, instead focusing on the electric vehicle hype. By doing so, it lost out.
SIM’s fund has benefited from the steep rise in platinum shares over the past year, as Anglo American Platinum rocketed 123%, Implats rose 109% and Northam gained 69%.
Today, Implats still accounts for about 11% of the fund, which has also taken aggressive positions in other resource shares – with Anglo American and BHP each accounting for 5% of the fund. Still, SIM’s bets on Old Mutual (8%) and Sasol (4%) are two choices that don’t look so smart right now.
One choice that does look smart is Altron, which has risen 383% over the past three years since SIM bought a 20% stake.
Patrice says SIM partnered with Value Capital, which poached Mteto Nyati from MTN. ‘The company’s focus on capital-intensive generators and cables supplied to Eskom changed to capital-light businesses. It’s now high growth, benefiting from digital transformation in financial services, mobility and healthcare. Basically, it’s the enabler to many disruptors and fintech businesses.’
SIM has avoided overpriced domestic stocks locally, which were over-reliant on consumer demand. It also avoided the construction sector, other small caps that were over-reliant on domestic economic growth, and companies that aimed to grow by buying assets offshore. Many of the same ideas found their way into the less aggressive SIM General Equity Fund.
* Excerpt from Stephen Cranston’s recent article in Financial Mail