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
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.