This is run by Adrian Saville, a part-time professor at the Gordon Institute of Business Science and it has a much more diversified portfolio than Investec or Momentum Value, at least when comparing the fund’s SA holdings. Cannon MD Geoff Blount says that the fund aims to tick both the “value” and “quality” boxes. “We have increased our focus on quality over the past few years. There is a risk in value investing that one can allow cheapness to ‘forgive’ poor quality. In the current environment we think that is dangerous.
“We also don’t believe in taking excessively large bets on one share. We believe in maintaining a diversified portfolio.” An example of quality in a low-quality sector is Pan African Resources, which digs out gold for $800/oz predictably and with no labour problems. Its largest holding, Anglo American, is not necessarily top quality, but Blount says that the current CE Mark Cutifani is focused on shareholder value. He might even unlock the value of diamond giant De Beers through a listing — and De Beers could be rated closer to a luxury goods business than a resources counter. Cannon owns a number of large cap resources shares — apart from Anglo it owns Sasol and Exxaro. But it has no direct platinum and is relatively light in gold. As a small fund with just R57m under management, Cannon can take hefty positions in small caps. Deep value managers do not have to own a share simply because it is in the benchmark. Cannon in particular has a clean sheet of paper approach in which the most compellingly priced shares — often with little regard to their market capitalisation — are chosen. It owns only one large cap financial, Old Mutual, and its small caps include Peregrine (which is also Cannon’s controlling shareholder), Sasfin, Clientele and Conduit Capital.
In industrials it has just Imperial among the large caps, otherwise preferring niche businesses such as Metair, Calgro M3 and chemical businesses Omnia and Rolfes. It even owns a go-go share of the 1998 boom Datatec.
“There are no falling knives in this portfolio,” says Blount, “it is a conservative group of good businesses at good prices.”