Publications
Partners
A fund that has held its own over time and is currently set to benefit from a more positive market environment emanating from South Africa’s spirit of renewal in recent months, is the Old Mutual Financial Services Fund.
Banking and financial stocks for the most part recovered well following the Nenegate scandal in late 2015, and, no less, registered impressive gains with the advent of the recent political and economic restitution.
“The final quarter of 2017 certainly ended with a bang for the financial sector,” says co-portfolio manager for the fund at Old Mutual Investment Group (OMIG), Neelash Hansjee.
“Cyril Ramaphosa’s win at the ANC elective conference in December provided a massive boost to the sector, and banks in particular. It signified a positive leadership outcome, with business and consumer confidence likely to improve.”
The FTSE/JSE Financial Index returned 16% over the final quarter of 2017, outperforming the FTSE/JSE Shareholder Weighted All Share Index (Swix) 9.6% over the same period.
The strong performance was driven by the banks, which gained 28% over the quarter. Some way off, but also impressive, was the life assurers sector at 19%, with general financials the laggard at 3%.
The Old Mutual Financial Services Fund’s annualised performance since inception (30 September 1997), is an impressive 14%, peaking last year at 15%.
Comparable figures over other periods show three years, 6.5%; five years, 12.3%; seven years, 14.1%; and 10 years, 11.4%.
The portfolio is actively managed and seeks to remain fully invested in and exposed within a clearly defined segment, Hansjee explains. “We focus on companies with long-term outperformance and long-term growth, and with reduced risk of loss by applying appropriate fundamental and deep research.
“The fund is suitable for investors who seek to achieve long-term capital growth and who have a particular view of relative market sector performance,” he says. “Its risk profile is considered high and investors must be willing to tolerate the volatility associated with the investments.”
Hansjee notes that unfolding events in SA during the past decade were not peculiar to the country, and required him and his co-portfolio manager Tracy Brodziak to pay considerable attention to the precedents of other financial markets during comparable crisis periods and potential downgrades.
Much the same had occurred, for instance, in Russia, Turkey, Brazil and Argentina, he pointed out, and he and Brodziak not only positioned themselves for seemingly imminent ratings agency downgrades, but stood ready to buy domestic banks at discounted prices.
Among the most attractive, he said, was Barclays Africa, which, though having been subjected to a rough ride, offered a price-to-earnings multiple of 7 and equal to its dividend yield.
The fund’s principal holdings as at 31 December 2017 are Old Mutual plc (14.2%), RMB Holdings (11.5%), Standard Bank Group (9.1%), Barclays Africa Group (8.4%), Investec Ltd (6.7%), Investec plc (6.4%), Nedbank Group, (6%), Transaction Capital (5.6%), Sanlam (5.2%) and PSG (5.2%).
Hansjee says that while it’s unlikely that recent segment winners will repeat the same magnitude of positive JSE returns in the near future, others that have been mispriced by investors’ fear may well surprise on the upside.
OMIG chief economist Johann Els nevertheless suggests that there may be some upside to the already above-consensus 1.5% growth forecast for this year.
The recent updated GDP growth data shows that 2016 growth was revised from 0.3% growth to 0.6%.
They now expect 2.5% growth in 2019.
“However, one should be cautious of becoming too optimistic,” he warns. “There are still many uncertainties, but it seems reasonably clear that the improved political backdrop provides for a more positive outlook for 2018 than before.”
Consumer debt levels have moderated, given the shallow pace of the interest rate cycle and the first rate cut in 2017.
With inflation being contained, the key risks are the rand and the interest rate cycle.
