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

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.

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