Financial Mail - Investors Monthly - - Analysis: Value Funds -

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.”

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