the fund is to invest in listed companies that engage in industrial activities and display the potential to grow earnings at an above-average rate. It follows the SIM pragmatic value investment philosophy, giving the fund a value bias.
Kingston says they are generally taking a cautious view on local stocks, which are quite expensive at current levels, and where conditions are deteriorating across several industries. Similar to its benchmark (the JSE’s Industrial Index), Naspers*, which is trading at a price-to-earnings ratio of 96.7 times, makes up the bulk of its portfolio. They have a “high degree of confidence in the valuation of Naspers”, says Kingston, despite the current volatility in Chinese markets. Naspers’s valuation is almost entirely made up of its 33.85% stake in Chinese internet giant Tencent.
The fund also holds a stake in 58.Com, another Chinese internet group with a major focus on online classifieds. Marlo Scholtz, who manages the fund with Kingston, says they came across 58.Com as part of their research into Naspers – similarly, their research into the local retail groups led them to buy a stake in Botswana-listed Choppies before its listing on the JSE earlier this year. The fund will not invest “indiscriminately” abroad, Kingston says.
Locally, the fund is seeing some opportunity in the mid-cap space, Kingston says. The fund has identified a “smattering of shares” that offer potential, including Curro, Distell, Mediclinic, Choppies, Pick n Pay and Adapt IT.