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

The fund has been through a change of port­fo­lio man­ager, with Pa­trice Ras­sou, the head of eq­ui­ties, tak­ing over from vet­eran fi­nan­cial an­a­lyst Roy Chap­man.

Ras­sou says he has aimed to tighten up the port­fo­lio to bring in more con­vic­tion holdings. In par­tic­u­lar he is keen on banks, which make up about half of the fund’s do­mes­tic as­sets. FirstRand and RMB Holdings make up al­most 15% of the fund, Stan­dard Bank 12% and Bar­clays Africa and In­vestec 7% each.

Ras­sou says the mar­ket is dis­count­ing bad news. He can­not re­mem­ber a time when the div­i­dend yield was the same as the price-to-earn­ings ra­tio (for ex­am­ple, Bar­clays Africa is on an 8 PE and an 8% div­i­dend yield). The noise around the po­ten­tial SA sov­er­eign down­grade has made this worse.

On the life in­sur­ance side the fund has fo­cused on Old Mu­tual, San­lam and MMI, with no ex­po­sure to Dis­cov­ery or Lib­erty. Dis­cov­ery is just “too ex­pen­sive” and Lib­erty has the high­est ex­po­sure to the lo­cal eq­uity mar­kets, no­tably through its 90/10 prod­ucts in which it shares in mar­ket losses with clients.

It is right to be scep­ti­cal when a fund in­vests in its par­ent com­pany, but Ras­sou jus­ti­fies its 8% weight­ing in San­lam by say­ing much of the ex­po­sure was picked up when the share slumped in the first quar­ter.

He says it has been much more suc­cess­ful than its com­peti­tors in Africa and has strong po­ten­tial through the Shri­ram al­liance in In­dia. San­lam’s pur­chase of joint con­trol of the Moroc­can-based Sa­ham groups gives ex­po­sure to North Africa which its peer group lacks, while the con­trol­ling stake in short-term in­surer San­tam is also a unique as­set.

Ras­sou says that Coro­na­tion is over­priced but the fund ac­cu­mu­lated a mod­est 2% stake when it hit lower lev­els. As­set man­age­ment, how­ever, has been a theme in the 12% held in off­shore (that is, not dual listed) shares, which in­clude the US-based Old Mu­tual As­set Man­age­ment. He says there are many in­sur­ers and as­set man­agers on in­ter­na­tional mar­kets which trade at tempt­ing dis­counts to in­trin­sic value. Amer­i­can In­ter­na­tional Group is a long-time favourite and makes up about 3% of the to­tal fund.

The fund is not a big holder of prop­erty shares, even though they make up 28% of the fi­nan­cials in­dex. But it re­cently bought a few shares that had div­i­dend yields north of 10%, in­clud­ing Re­bo­sis and Delta. Ras­sou is also in­ter­ested in a num­ber of bombed-out UK blue chips such as Bri­tish Land. But he is scep­ti­cal about in­ter­na­tional banks, even those with a price to book as low as 0.5 (such as Bar­clays Plc) — this is usu­ally ex­plained by the lack­lus­tre re­turn on eq­uity.

But he likes In­vestec, which also has a legacy book in the UK but has an ex­cel­lent global as­set man­ager and a solid pri­vate wealth busi­ness, as well as a good SA bank.

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