Weekend Argus (Saturday Edition)

Global stock-picker delivers again

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CONTRARIUS GLOBAL EQUITY FUND (IRELAND)

Global Equity Fund (Ireland) returned an annual average of 15.43 percent in rands, beating its peers in the ProfileDat­a global equity general sector of offshore funds that have been approved by the Financial Services Board to be marketed in South Africa.

The average annual return of the 74 funds in this sector was 6.29 percent in rands. The benchmark for this sector, the Morgan Stanley Capital World Index, returned 11.43 percent a year for the three-year period.

According to the fact sheet, the fund had negative annual returns in 2014 (–3.9 percent) and 2015 (–17.9 percent), but earned 48.5 percent last year. In all three years, the fund out-performed its benchmark, the MSCI World Index, because it typically invests quite differentl­y from the benchmark.

Contrarius is a valuation-based investment manager – it seeks out shares that it believes are trading below their underlying intrinsic value and are attractive relative to other investment opportunit­ies. The manager sells shares when they have reached their underlying intrinsic value and are less attractive relative to other investment opportunit­ies.

The manager describes its approach to value investing as contrarian, and says although researchin­g the intrinsic value of a company is important, it also considers the profits cycle, avoiding companies that appear cheap, but where there are substantia­l risks to profitabil­ity.

Contrarius takes a long-term approach to investing, with a typical investment horizon of four years. The manager believes that the key to out-performing investment markets in the long term is to focus on the long-term value of a business, rather than short-term news flow. In the short term, stock prices tend to be driven by market sentiment and the immediate earnings outlook rather than the underlying value of the business.

As Contrarius considers each share relative to all the other investment opportunit­ies, it does not favour any particular sectors, Heaton van der Linde, a director of Contrarius, says.

Over the first part of the threeyear period to the end of December, the fund benefited from the performanc­e of technology stock Apple, as it continued to build out its powerful ecosystem, Van der Linde says. The fund continues to hold these shares.

The manager also used the significan­t falls in the prices of commoditie­s in recent years to buy up resources shares that were trading significan­tly below their fair value and these have contribute­d to out-performanc­e over the past year, Van der Linde says.

For example, the company invested in Canada’s resources share, Teck Resources, a producer of several commoditie­s that it believes are attractive from a longterm demand perspectiv­e (including metallurgi­cal coal, zinc and copper).

Investors, however, became extremely pessimisti­c on all commodity-related shares, which created a significan­t opportunit­y for Contrarius to acquire shares at a price well below its assessment of the company’s underlying intrinsic value.

Fortescue Metals Group, a lowcost resources producer listed on the Australian stock exchange, has been shunned by investors since iron ore prices fell to what were, in the manager’s opinion, unsustaina­bly low prices, Van der Linde says.

As iron ore prices recovered over the past year, Fortescue has begun generating significan­t cash flow and rapidly repaying its net debt, leading to good returns for Contrarius’s Global Equity Fund.

For the year ahead, the fund is overweight relative to the MSCI World Index, in energy and materials shares and consumer discretion­ary and technology stocks, according to Van der Linde.

Apple and The New York Times, which the fund has held for some time, continue to be large holdings. Contrarius believes the New York Times has been successful in converting print readers to digital and has sold off its non-core assets.

The fund’s largest holdings in the materials sector include Fortescue and Vale, which Contrarius believes continue to be very attractive­ly priced despite their recent outperform­ance, Van der Linde says. – Laura du Preez

 ??  ?? Contrarius Equity Fund (Ireland) wins the Raging Bull for Best (FSBapprove­d) Offshore Global Equity Fund. Kevin Posen (left), the chief executive officer of Contrarius Investment Management, collects the award, which was presented by Ernie Alexander, the chairman of the Profile Group.
Contrarius Equity Fund (Ireland) wins the Raging Bull for Best (FSBapprove­d) Offshore Global Equity Fund. Kevin Posen (left), the chief executive officer of Contrarius Investment Management, collects the award, which was presented by Ernie Alexander, the chairman of the Profile Group.

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