Skill­fully nav­i­gat­ing a rough patch

Things have been some­what rocky for Corona­tion Fund Mangers re­cently, with its share price slip­ping al­most 40% in the past 10 months. fin­week con­sid­ers what the com­pany’s for­tunes look like over the com­ing months.

Finweek English Edition - - MARKETPLACE - Ed­i­to­rial@fin­

founded in 1993 when 15 peo­ple walked out of Syfrets Man­aged As­sets, Corona­tion is now a global as­set man­age­ment com­pany of­fer­ing a range of lo­cal and in­ter­na­tional prod­ucts to in­sti­tu­tional and in­di­vid­ual in­vestors. As at end Septem­ber, it man­aged R610bn in client as­sets, up 3.7% from the year be­fore.

The group, whose for­tunes are closely tied to the re­turns of the mar­ket and the level of out­per­for­mance it gen­er­ates on be­half of clients, saw rev­enue de­cline by 7% to R4.4bn in the year to end Septem­ber as global growth de­te­ri­o­rated and in­vestors with­drew funds from emerg­ing-mar­ket eq­ui­ties and cur­ren­cies, it said. In­ter­na­tional as­sets un­der man­age­ment were up 11% to R141bn.

Di­luted head­line earn­ings per share were down 9.7% to 516c, while the div­i­dend was cut by 9.7% to 516c. “Due to a de­cline in both mar­ket re­turns and the ab­nor­mally high level of per­for­mance fees gen­er­ated in the prior fi­nan­cial year, rev­enue for the cur­rent pe­riod de­clined... This, in turn, led to a de­cline in di­luted head­line earn­ings com­pared with the record high earn­ings base achieved in the prior fi­nan­cial year,” Corona­tion said. The group’s share price is down 37% since the start of the year.

It warned that the re­cent lev­els of ex­treme mar­ket volatil­ity are likely to per­sist, but that the longterm in­vest­ment track records of all its key funds re­mained com­pelling de­spite the chal­leng­ing en­vi­ron­ment.

While Corona­tion ex­pe­ri­enced rep­u­ta­tional dam­age and saw some out­flows of investor money fol­low­ing the col­lapse of African Bank In­vest­ments in the sec­ond half of 2014, on which it took a ma­jor bet and ended up with a 22% stake, it re­mains one of the top-per­form­ing fund man­agers in the coun­try. It was ranked third for per­for­mance in the an­nual Alexan­der Forbes Global Large Fund Man­agers Watch for the five years to end Septem­ber. Fo­ord As­set Man­age­ment was ranked top, fol­lowed by In­vestec As­set Man­age­ment. Over the next year, in­vestors will also be pay­ing at­ten­tion to the change in Corona­tion’s fee struc­tures and bench­marks. From 1 Oc­to­ber, the group changed the fee struc­tures and bench­marks on a num­ber of its funds, scrap­ping per­for­mance fees and shift­ing to fixed fees. Fixed fees are eas­ier to com­pare, and clients know what they are go­ing to pay, Corona­tion ex­plained at the time. In ad­di­tion, Corona­tion has also changed its bench­mark to the FTSE/JSE Capped All-Share In­dex, which caps com­pa­nies’ ex­po­sure in the in­dex to a max­i­mum of 10%. For the year to 1 Oc­to­ber 2016, the cheap­est of the “old” or “new” fee struc­tures will be im­ple­mented.

What next?

Pos­si­ble sce­nario: Corona­tion has breached the sup­port trend­line of its bear trend, af­ter re­tain­ing key sup­port at 6 485c/share, in­di­cat­ing that buy­ing mo­men­tum is on the rise. The weekly rel­a­tive strength in­dex (RSI) has aban­doned its long-term bear trend, which is a very bullish move. If sup­port holds firmly above 6 700c/share, a re­cov­ery through 7 865c/share should be un­der­way. An­other good buy­ing op­por­tu­nity would be pre­sented above 7 520c/share, with po­ten­tial gains to the 9 500c/share re­sis­tance level in the short term (one to six months). Al­ter­na­tive sce­nario: A re­ver­sal be­low 6 500c/share could trig­ger panic sell­ing to sup­port at 5 530c/share. Next sup­port would be at 4 620c/share.

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