Cash­ing in on un­der­val­ued stocks

The In­vestec Value Fund aims to pro­vide in­vestors with cap­i­tal growth over the long term. FUND IN­FOR­MA­TION:

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Fund man­ager in­sights:

The In­vestec Value Fund aims to cre­ate wealth for clients through ac­tive man­age­ment and an ap­proach that is dis­tinctly con­trar­ian, bot­tom-up, anti-macro fore­casts and val­u­a­tion bi­ased, says John Bic­card, port­fo­lio man­ager of the In­vestec Value Fund.

As it is a value-based eq­uity fund, Bic­card prefers to buy un­der­val­ued stocks that are out of favour. “Its per­for­mance will dif­fer markedly from that of the in­dex and peers, so it there­fore of­fers port­fo­lio di­ver­si­fi­ca­tion from other eq­uity funds,” he says.

It is also worth not­ing that Bic­card takes con­cen­trated po­si­tions in stocks where he sees value, which may lead to sig­nif­i­cant ex­po­sure to a par­tic­u­lar sec­tor or in­dus­try.

He says the fund’s po­si­tion­ing re­mains very dif­fer­ent to both the in­dex and the av­er­age strat­egy in the gen­eral eq­uity sec­tor, but that the repo­si­tion­ing they did in the third quar­ter of last year has left it “the most bal­anced it has been over the past three years”.

The port­fo­lio is now split be­tween five dif­fer­ent themes – gen­eral min­ing, gold, mid-caps, off­shore and plat­inum – against just three a year ago – gold, off­shore and plat­inum.

“These changes were made be­cause of the mas­sive un­der­per­for­mance of the mid-cap stocks we have in­vested in, the value we per­ceive in se­lect gen­eral min­ing stocks as well as the rise in pre­cious met­als shares, all of which meant a slightly more bal­anced view was ap­pro­pri­ate,” ex­plains Bic­card.

Mid-cap stocks ac­count for 24% of the port­fo­lio and Bic­card says these shares are cur­rently cheap and should ben­e­fit from the firmer rand and lower do­mes­tic bond yields. He there­fore ex­pects good re­turns from these stocks.

ArcelorMit­tal SA and African Rain­bow Min­er­als ac­count for 15% of the port­fo­lio. He says the rapid rise in min­ing stocks in 2016 has re­sulted in a slightly more cau­tious view on this sec­tor, but he still sees some value in these stocks.

Bic­card’s long-held pos­i­tive view on the US dol­lar gold price re­mains and there­fore gold (14% of the port­fo­lio) should re­main an at­trac­tive as­set, he says. As plat­inum (20% of the port­fo­lio) is a pre­cious me­tal, the same ra­tio­nale for gold ap­plies, Bic­card adds. The fund has an ex­cel­lent long-term track record, sig­nif­i­cantly out­per­form­ing the re­turn of the JSE’s All Share In­dex and its peer group’s re­turn since in­cep­tion.

At the re­cent Rag­ing Bull Awards, which hon­our the top funds in the unit trust in­dus­try, the In­vestec Value Fund won the Rag­ing Bull award for top out­right per­for­mance over three years by a South African eq­uity gen­eral fund.

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