NEDGROUP INVESTMENTS FINANCIALS FUND

The fund is run by Kokkie Kooyman, the co-head of Denker Capital (a division of Sanlam Investment Management). In a fairly undifferentiated unit trust sector, Kooyman’s strategy is subtly different. For a start, 20% of the fund’s assets are invested in the Sanlam Global Financial Fund. Apart from AIG in the US, Ageas in Belgium and Sparebank 1 Nord Norge in Norway, all of the top 10 shares are in emerging markets. They include shares long held in the portfolio, such as TSKB in Turkey, and unexpected counters, such as TBC Bank in Georgia.

The global fund contributed to the local fund performance, as the fund gained 5% in dollars in April, though the global fund is still barely positive for the year to date and shares are still 10% below their December 2013 levels. Obviously it looks much better in rands.

He says there were excellent results from banks such as US Bancorp, JPMorgan and India’s Yes Bank. And there have been selective rebounds in April with Adira in Indonesia gaining 21%, Santander Consumer 25% and Sberbank of Russia 13%.

Many have been growing shareholder capital at a high compound rate. The US accounts for 26% of the global fund overall, Europe 17%, India 12% and Indonesia 11%, with further investments in Georgia, Russia, Peru and Turkey.

Another differentiator is that Kooyman has chunky holdings in some second-tier financial services businesses such as the JSE (7%) and Sasfin (5%) He also has a 2.5% holding in Transaction Capital.

Kooyman says the medium-term outlook for SA financial shares remains bleak, with inflation, rising unemployment and a rising oil price all conspiring to make life tougher, though a reversal in flows back to emerging markets might help the rand.

The fund benefited from the recent rebound in shares such as Sanlam — in which its 9% holding is well ahead of the peer group — and Standard Bank.

Kooyman says March and April have highlighted the danger of selling when markets fall and shows that quality companies rerate mostly when sentiment turns. He has, however, reduced the holding in Discovery for company-related reasons as well as Nedbank and Barclays Africa because of uncertainty about their immediate shareholding and because of the potential overhang.

He has also sold off Alexander Forbes, which he describes as disappointing, and the way in which its CEO Edward Kieswetter was let go without proper succession planning was not good ethically.

In the meantime, Kooyman has built up the large Sanlam position over 24 months — he is excited by the firm’s prospects in India. The holding in the JSE Ltd was built up over eight months, as it looked undervalued relative to peers such as Deutsche Borse, the Moscow exchange and Bovespa in Brazil. It is a share with very little risk, as it has no bad debt or interest rate risk and it was mispriced.