Funds hang on to Resilient

MANIPULATION: GROUP DENIES ANY WRONGDOING

The first quarter was catastrophic for investment funds heavily backing the group.

Investors stick by group of companies despite it facing on-going probes by the JSE.

Although the first quarter (Q1) turned out to be catastrophic for investment funds heavily backing the Resilient companies – including Resilient, Greenbay, Nepi Rockcastle and Fortress – many are still hanging on to their major positions.

For years, funds backing Resilient companies outperformed the benchmark FTSE/SA Listed Property Index (Sapy) and dominated unit trust performance tables.

However, top-rated funds are likely to underperform in 2018 given the tumultuous start to the year. The real estate stock rally came to a spectacular end in 2018’s Q1 – with the Sapy index slumping 21.47% and delivering negative total returns of 19.35%.

The unprecedented selloff in Resilient companies’ share prices, on the back of allegations that they use questionable accounting policies and related parties to artificially boost dividend payments, has weighed heavily on the sector.

Resilient has denied any wrongdoing.

Fears that Resilient companies might be the next Steinhoff have placed its shares in the losers pile, with Resilient plunging 66.9%, Fortress B shares 71.8%, Greenbay Properties 60.8%, and Nepi Rockcastle 46.2%.

Investment funds with large exposures to Resilient companies – as large as between 30% to over 50% at end December – have taken a massive hit.

Government pensioners are also feeling the heat, as the Public Investment Corporation (PIC) has pencilled in losses as it is the single biggest shareholder in Resilient, Fortress, Nepi Rockcastle and Greenbay companies.

Two of 2017’s top-performing real estate funds (both delivering returns of over 20%), Metope MET Property Fund and Absa Property Equity Fund, were Q1’s worst performers.

Resilient companies, including Fortress, Greenbay and Nepi Rockcastle, feature in Metope Investment Managers and Absa’s top six holdings, with a combined weighting of about 50% and 44.5%, respectively. Resilient also features in their top holdings.

For now, both are sticking by Resilient, despite it facing on-going investigations by the Financial Sector Conduct Authority (former FSB) and JSE into share price manipulation.

“The Resilient stable of companies’ own quality assets, have strong management teams, and are defensively managed with regards to mitigating interest and currency risks to income,” said Metope’s Liliane Barnard.

For Absa’s Fayyaz Mottiar, it’s about investing in Resilient companies for the long term, through the volatility.

Absa began reducing its holdings in Nepi Rockcastle (from over 20% to 13.3% at end December 2017) and Greenbay (from 10% to 7.7%) over valuations. However, it maintains its holdings in Resilient and Fortress.

“What is concerning … is that a group of hedge funds, long-only funds, and a bank allegedly colluded to actively bring these prices down whilst using social media and conventional media to drive sentiment,” Mottiar said in a note.

“This coordinated attack by a group of hedge funds has permanently changed the price determining the ability of the market.”