The Naspers problem

A LARGE POSITION IN ONE STOCK The media giant’s relative size in the local market has become a challenge for many local fund managers.

to Naspers.

“A lot of ‘SA Inc’ shares, such as Italtile, are not correlated with Naspers.” Cash is also completely uncorrelated. “So I’m running the fund with a little more cash than I would if I had a lower position in Naspers.”

While this is prudent portfolio management, it creates distortions. Morningstar says the Aluwani Top 25 Fund has the largest Naspers exposure of any active general equity fund, at 27.5%.

The fund’s benchmarked against the Top 40; the Top 40 itself is the managers’ starting point when building the portfolio. They then overweight or underweight stocks to generate outperformance.

Some analysts would argue this takes far too much risk in a single stock.

In a recent client note, Aluwani recognised this:

“… we are not completely oblivious to the absolute weight of Naspers in our portfolios, largely because, as investors, despite our best efforts and rigorous investment process, we can not know all there is to know on any investment we have in our portfolios, hence the need for risk management.”

It uses derivatives to hedge against a material pull-back in Naspers. This allows it to have the conviction to have such a large exposure, but still give its clients comfort that they’re protected. The First Avenue SCI Equity Fund has 21.47% of its portfolio in the stock, while the First Avenue SCI Focused Quality Equity Fund gives it a weighting of 22.13%.

First Avenue’s Hlelo Giyose says this isn’t just based on a positive view of Naspers, but also a desire for growth exposure.