CORONATION DECKER NAME FINANCIAL FUND
The fund is managed jointly by Neill Young and Godwill Chahwahwa. It is invested exclusively in JSE stocks with no offshore allocation, though its top 10 include rand hedges such as Capital & Counties, which owns a big chunk of the Covent Garden area as well as of Earls Court in London, UK shopping centre owner Intu and Reinet, which is not strictly a financial services business but an investment company that invests primarily in British American Tobacco as well as in a British pensions business.
Young says that property is now a large part of the financials benchmark — almost 30% — but most clients are looking for a separate building block for financials and another for property.
“We do not typically invest in SA domestic landlords, but we will invest in shares which provide a rand hedge as well as SA property developers, which provide growth rather than yield, such as Attacq,” says Young.
The fund has a fair slug of parent company Coronation Fund Managers, but Young says the financials team is treated as an outside shareholder with no privileged information. It nonetheless does not trade in the share during closed periods.
He says the fundamentals are not as awful as the market seems to imply — there will be an increase in bad debts at banks and in the lapse rates at life offices, but this is more than discounted in the share price. All major life offices and banks have decent capital positions.
The biggest share in the portfolio is Old Mutual, which Chahwahwa says is valued at far less than the sums of the parts. The current strategy of managed separation will eliminate excess costs at the centre and release value in unlisted components of the group, such as Old Mutual Wealth in the UK.
Young says Sanlam is more capital efficient, but it is already quite full at a 20% premium to embedded value. One of his favourite shares is Rand Merchant Investment (RMI) Holdings as it gives access to Discovery and MMI (it holds both in their own right), and unlisted direct insurer Outsurance.
Young is more sceptical about Barclays Africa over concerns about the exit of Barclays Plc, particularly in the rest of Africa where the brand is a key part of the identity.
Though the managers are not overexcited about Liberty Holdings, they took a 2.5% position in March when the share just became too cheap.
There are few stagging opportunities in SA’s financial sector, but asset manager and administrator Sygnia was a rare exception and, after doubling its money, the fund exited this share.