OLD MUTUAL FINANCIAL SERVICES FUND

The long-time manager of this fund, Tracy Brodziak — owing to the pressures of her radio commitments — now has an overseeing role on the fund, which is now run by Neelash Hansjee.

Hansjee says the fund has underperformed its benchmark, the category average, over one year: detractors included Capital & Counties, which investors abandoned as they were anxious about the upcoming British referendum on membership of the EU.

Hansjee says Capco’s Lillie Square units, a high-profile residential development in West London, have slowed as London’s housing market remains under pressure.

Old Mutual Financial Services has a comparatively high weighting in Barclays Africa as opposed to Standard Bank. Shares that helped the fund included Liberty, Santam and FirstRand. Hansjee says Santam is a high-quality business which keeps improving and it has been able to diversify its revenue, notably through a deal with Sanlam to take a 35% stake in its African and Asian businesses.

Hansjee says the fund has a preference for banks, which in price-to-book terms are on 10-year lows in some cases. It has few niche financials apart from Peregrine Holdings (3%) and Transaction Capital (1%).

He does not hold Capitec — the story looks good but the valuation is “punchy”. It is also vulnerable with a large unsecured consumer finance franchise at a time when interest rates are increasing.

There have been plenty of better value shares to buy in the sector, such as the fund’s parent company Old Mutual, with the promise of value to be unlocked through the coming restructuring. Barclays Africa is also looking cheap for a sound business with a 17% return on equity.

The fund has a sprinkling of shares that are not true financials, such as Reinet. Even that has a stake in the UK pensions business, but its holding in British American Tobacco dominates its net asset value.

Brodziak says in a difficult market for financials the sector still delivered a return of 6.2% in the March quarter, ahead of the overall market. And it was not a homogeneous sector, with nonlife insurance (Santam) up 27% and general financials just 2%.