Earlier this year Finweek rolled out its “Acorn Portfolio” where we picked a number of interest i ng private equit y and investment holding companies that we fancied to deliver the goods in 2012. The good news is that the portfolio has delivered a 27% return between 6 January 2012 and 1 December 2012. The even better news is that we think the portfolio can do the same in 2013.
The below table is how the portfolio shaped up in the current year.
The one obvious laggard in the above portfolio was RE:CM & Calibre but if one considers that it spent much of its time trading around R10.50/share in October, the return from it would have been significantly better. When RE:CM announced its net asset value ( NAV) recently, it came in at R11.26, for a share trading at around R9.65, at the moment there is definitely value to be unlocked here.
So what are the changes we propose making to this portfolio?
One of the big motivators for picking the Stanlib Fund was that it was managed by the very highly regarded Shawn Stockigt who has subsequently l ef t t he asset manager. There was also the launch of the RMB SmallMid Cap ExchangeTraded Fund (ETF) which we t hink i s a great product. For us, we would cash in our investment in the Stanlib fund and substitute it for the RMB product.
Internally, there has been quite a lot of interest in private equity group Blackstar, which has made some quite aggressive moves into the local media and healthcare sectors. One of the reasons it didn’t make the portfolio in 2012 was an underlying sense that it might be one of those companies that would become a value trap for investors and fail to deliver the goods for. The group has done enough this year to suggest that they are serious and aren’t going to drop off in the next six to 12 months and we’re comfortable to buy them at R11.50. The rand-based NAV of Blackstar is R14.20 (as at the end of October 2012), which suggests that the group is being mispriced.
The final addition for 2012 would be JSE-listed resource play Pallinghurst at under R2.40/share. As we’ve previously indicated, Pallinghurst sits at a deep discount to its NAV, the group is maturing as an investment and has bought into a number of out-of-favour sectors – specif ically platinum. The deals are being done and the vehicle is gaining momentum, 2013 could be the first year it really kicks into gear.
This year was obviously a year in which Brait was the significant outperformer and it is hard to see it reproducing the same returns in 2013. Our favoured pick in the “Acorn Portfolio” for next year is Reinet. Despite its detractors, Reinet spent much of the current year deploying capital. In principle we don’t like the management fees and the complicated structure of the group, but in its favour Reinet has been able to invest in distressed assets for much of 2011/2012 and next year could be the one where it starts to reap the dividends.