Avoid melt­downs and stay fo­cused

As­set man­ager ad­vises clients to di­ver­sify, es­pe­cially into global tech com­pa­nies

Financial Mail - - SPECIAL REPORT -

Cape Town-based Fen­es­tra As­set Man­age­ment is liv­ing up to its rep­u­ta­tion of pro­tect­ing clients from ma­jor dis­as­ters on the JSE.

No­table for be­ing one of the as­set man­agers which kept away from Stein­hoff and African Bank, more re­cently its clients were saved from MTN’S one-day fall of 23% af­ter Nige­rian au­thor­i­ties slapped a sec­ond multi­bil­lion rand de­mand on the group. MTN’S share price has halved in five years.

Clients were also saved from Wool­worths’ lat­est dis­as­ter with David Jones in Aus­tralia, on which it has writ­ten down R7bn.

As a small and very per­sonal as­set man­ager, with only a few hun­dred clients, Fen­es­tra does not put its clients into vanilla funds but tailors port­fo­lios ac­cord­ing to in­di­vid­ual needs. De­spite cater­ing for the dif­fer­ent re­quire­ments of each of its clients, it has man­aged to avoid tricky pit­falls and calami­tous de­clines across the board, says CEO William Meyer, who founded Fen­es­tra in 1990.

“If you look at the litany of Stein­hoff, Re­silient, Wool­worths, Brait and MTN dis­as­ters, we have had no ex­po­sure to those coun­ters,” says Meyer.

Fen­es­tra had no ex­po­sure to Capitec or the listed prop­erty sec­tor. It had just 2,000 shares in

Tiger Brands, which has re­cently fallen sharply, and none in EOH, which has been un­der im­mense pres­sure.

Meyer at­tributes Fen­es­tra’s abil­ity to avoid these stocks to its in­vest­ment phi­los­o­phy. “We are very sus­pi­cious, para­noid and fo­cused, with 10 to 12 well­re­searched shares in a port­fo­lio. We are re­luc­tant to in­vest in bank­ing and min­ing – which we avoid like the plague – and we in­vest in com­pa­nies that do not have big debt and which are eas­ily un­der­stood.”

The key is not only to pick win­ners but to avoid com­pa­nies with a high prob­a­bil­ity of a melt­down in price.

Top of its in­vest­ment cri­te­ria list is hon­esty of man­age­ment, while other cri­te­ria are an estab­lished profit his­tory, a grow­ing mar­ket with grow­ing mar­gins, strong cash gen­er­a­tion abil­ity, con­trol­lable risks and some blue-sky po­ten­tial. It is also prefer­able if the man­agers are sig­nif­i­cant share­hold­ers.

Lo­cally, Fen­es­tra’s port­fo­lios are heav­ily weighted to Naspers, Long4life and Bid­corp. The lat­ter two clearly re­flect Meyer’s be­lief in Brian Joffe’s in­vest­ment strat­egy.

With the ex­cep­tion of a few com­pa­nies like Naspers, Fen­es­tra fo­cuses largely on mid-cap stocks that show value and have growth po­ten­tial. These stocks may not have an im­pact on a large fund man­ager’s port­fo­lio, but make a big dif­fer­ence in smaller port­fo­lios.

Fen­es­tra stays away from high­risk shares, in­clud­ing banks, where Meyer sees in­creased pro­vi­sions for bad debts and con­cern over the re­cov­er­abil­ity of their loan books, while he “morally and eco­nom­i­cally” does not like mi­crolend­ing, which he con­sid­ers high risk.

Fen­es­tra’s per­for­mance since in­cep­tion in 1990 has been strong. It has reg­u­larly out­per­formed the Alsi, with one of its big­gest suc­cesses be­ing lim­it­ing the neg­a­tive re­turn in 2008 to un­der 15%, when the Alsi dropped 26% af­ter the global fi­nan­cial melt­down.

Choices on the JSE, par­tic­u­larly for tech in­vest­ment, are lim­ited but off­shore the op­por­tu­ni­ties are end­less and Fen­es­tra has taken ad­van­tage of them.

“We are very ex­cited about our over­seas port­fo­lio,” Meyer says, “And we want in­vestors to know you do not need to be megawealthy to have an off­shore ac­count. We can do much smaller ac­counts.” With po­lit­i­cal un­cer­tainty, ex­ac­er­bated by land ex­pro­pri­a­tion, he wants to pro­tect clients and en­sure they have a por­tion of their in­vest­ment over­seas.

Off­shore port­fo­lios are also unique. “We don’t stick clients into an ETF or bunch of unit trusts. Each client has a spe­cific in­vest­ment pro­file and an ac­count is opened in the client’s own name, with funds mov­ing from their own bank ac­count to a bank ac­count in Lon­don.

Fen­es­tra started buy­ing Ap­ple at $46.83 (it is now trad­ing at $227), and Ama­zon at $185.68 (now over $2,000).

Fen­es­tra’s rel­a­tively small size is a ma­jor ad­van­tage over larger com­peti­tors, al­low­ing a fo­cused ap­proach to in­vest­ment.

It has a sim­ple fee struc­ture – a per­cent­age of as­sets un­der man­age­ment and no lay­ers of fees, which eat into re­turns.

What it means: Clients needn’t have large amounts of cap­i­tal to open off­shore ac­counts

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