Solid per­for­mance, con­sis­tent re­turns

The fund in­vests pre­dom­i­nantly in South African and off­shore eq­ui­ties and holds about 5% lo­cal prop­erty stocks. It has a medium to high risk rat­ing and, typ­i­cally, an in­vest­ment hori­zon of be­tween three and five years. Since in­cep­tion more than two years

Finweek English Edition - - MARKETPLACE -

The fund hasn’t favoured South African com­pa­nies re­cently, says Dar­ryl Han­ning­ton, man­ager of the Baobab BCI Flex­i­ble Op­por­tu­nity Fund.

He is, how­ever, op­ti­mistic about the out­look for Brait SE, the fund’s largest hold­ing. The fund held Brait for its largest in­vest­ment, namely Pep­kor, he says. Af­ter Pep­kor was sold to Stein­hoff, the stock ef­fec­tively be­came a cash sell, Han­ning­ton says, with a “good man­age­ment team”. Sub­se­quently the fund started buy­ing Brait ag­gres­sively, he ex­plains.

This was done “on the back of what we be­lieved was a very strong pri­vate-eq­uity man­age­ment team go­ing to do good deals with the cash that they had”, ac­cord­ing to Han­ning­ton. “Sub­se­quently we were proven cor­rect. They [man­aged] fan­tas­tic deals, which the mar­ket has clearly loved, in Vir­gin Ac­tive and, more par­tic­u­larly, New Look.”

The fact that Brait sold its re­main­ing Stein­hoff shares back to the lat­ter boosted its cash hold­ings, giv­ing it the op­por­tu­nity for more deals in fu­ture, he said.

The fund has used its full off­shore al­lowance and Han­ning­ton is bank­ing on the strong Amer­i­can con­sumer for re­turns.

“The US con­sumer is in good shape,” he says and adds that cor­po­rates in the world’s largest econ­omy are sit­ting on swollen bal­ance sheets as they shy away from in­vest­ing in new ca­pac­ity.

Lo­cally, the fund has steered clear of re­source stocks as com­mod­ity prices plum­meted on the back of a cool­ing Chi­nese econ­omy. The fund has also avoided con­struc­tion stocks whose earn­ings dropped, even as they are trad­ing in the “high sin­gle dig­its” on price-earn­ings val­u­a­tions, ac­cord­ing to Han­ning­ton.

Why fin­week would con­sider adding it

The fund is one of the top per­form­ers in its cat­e­gory, ac­cord­ing to Morn­ingstar Re­search SA’s rank­ings. It con­sis­tently yields a real re­turn, al­though it is still young.

The fund counts Brait SE, a solid in­vest­ment hold­ing ve­hi­cle, as its top share. It also banks on grow­ing smaller stocks such as Pin­na­cle Hold­ings and in­vest­ment com­pany An­chor to drive re­turns. With about a quar­ter of its value in­vested off­shore, the fund has a built-in hedge against rand weak­ness. With Naspers*, Stein­hoff, In­vestec and Net­care as some of its top 10 hold­ings, the fund is ex­posed to grow­ing con­sumer mar­kets off­shore as the lo­cal econ­omy bites into do­mes­tic buy­ers’ wallets.

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