MOMENTUM FINANCIALS FUND

When the Momentum unit trusts were split between the new empowerment manager Aluwani, which broke away from Momentum, and the core Momentum Asset Management business, the financial fund was given to Momentum’s senior portfolio manager Norman MacKechnie and Werner Burger, who is an assistant portfolio manager on the house view funds.

More than half of the portfolio is in four groups. There is a 20% exposure to Old Mutual and its banking subsidiary Nedbank, about 16% to Standard Bank, 15% to FirstRand/RMB Holdings and 10% to Investec. Standard Bank, Investec and RMB Holdings are the largest overweights, Brait, Sanlam and Capitec the largest underweights.

Banks were the worst-performing subsector of the financial index with a negative return of 12.8% in 2015 in contrast to the 18.8% positive return from general financials and 8% from property. The top 10 is rounded off by Reinet, Sanlam and MMI.

MacKechnie says both banks and insurers have derated over the past year: banks will see lower growth and tighter interest margins, as well as pressure on noninterest revenue. But he expects them to maintain dividends, particularly as they have higher provisions than they have had at this stage of the cycle.

He is also concerned that the African operations will not give the easy returns they seemed to promise a few years ago — an indication of this was the profit warning from Nedbank associate Ecobank.

Yet there has been nowhere to hide as other financials such as Sasfin and PSG have underperformed over certain time periods. Recently MacKechnie added to the holding in Coronation, after it fell, but sold out of Discovery. In December 4% of the fund was invested in Discovery, which faces challenges such as Ping An.

The position in MMI is underweight as there continue to be challenges from its fledgling short-term insurance business as well as health — he would like to see a refocus on the life and investment business.

In common with its peers the fund has an exposure to property which is well below benchmark, with a few exceptions such as Emira, which now offers a yield similar to the 10-year government bond. But it recently sold Capital Properties and lightened Intu and Nepi. It also sold out of Alexander Forbes.