This deep value house had a substantial loss of assets, to the extent that this fund now has barely R5m under management. There may be regrets, as the fund is now about 20% ahead of the all share.
Portfolio manager Jeleze Hattingh says the fund has taken profits from its high platinum and gold holding though it has been buying in the dips — AngloGold Ashanti was increased from 1,6% to 2,6% of the fund. It is now the only resources share in the fund’s top 10. In June Sasol, the largest holding in the fund, was sold. Hattingh says Sasol fell out after its recent update, but the Element team had lost faith in management when its promises about the ethylene cracker in Louisiana did not come to fruition. M&R and MTN came into the top 10. Investec fell out.
The fund is overweight in resources at 22% of equities as well as in financials at 25% (particularly Standard Bank and Old Mutual), but underweight in industrials at 53%. Local equities make up 38% of the fund. The fund has 10% in property, most in high yielding Delta Property Fund — with a forward yield of 14% and its sister company Mara Delta.
Vukile also makes the top 10, though the holding has been reduced. Hattingh was concerned Vukile’s interest in UK properties via Atlantic Leaf had not been properly priced by the market — remaining steady while other UK property plays fell 30%-40%.
Element Balanced is one of the few balanced funds with a significant allocation to preference shares, of 8%. This is higher than the 7% holding in nominal bonds. Hattingh says these are attractive not only because they are linked to the prime lending rate but also because banks such as Investec have made open tenders to buy back prefs at a discount. After Basel 3, prefs are no longer an efficient way for banks to finance balance sheets. She hopes the fund will soon realise a profit from its Abil prefs, which were written down to zero. Element will soon close the Abil side pocket which holds its Abil bonds as these will soon be tradable at acceptable prices.
Element runs its global assets in-house and this fund has 15% in foreign equity and 2% in foreign income via the Element Global Equity fund. The equities are focused on the US, which accounts for two-thirds of the fund, with names such as United Healthcare, Oracle, Applied Materials and Visa. UK names include SABMiller and Vodafone. SABMiller is considered a safe bet because of the GBP44 underpin from AB InBev’s bid. The foreign portfolio has no resources, and just 10% in financials, with the rest in industrials.