SIM FINANCIAL FUND

The fund has been through a change of portfolio manager, with Patrice Rassou, the head of equities, taking over from veteran financial analyst Roy Chapman.

Rassou says he has aimed to tighten up the portfolio to bring in more conviction holdings. In particular he is keen on banks, which make up about half of the fund’s domestic assets. FirstRand and RMB Holdings make up almost 15% of the fund, Standard Bank 12% and Barclays Africa and Investec 7% each.

Rassou says the market is discounting bad news. He cannot remember a time when the dividend yield was the same as the price-to-earnings ratio (for example, Barclays Africa is on an 8 PE and an 8% dividend yield). The noise around the potential SA sovereign downgrade has made this worse.

On the life insurance side the fund has focused on Old Mutual, Sanlam and MMI, with no exposure to Discovery or Liberty. Discovery is just “too expensive” and Liberty has the highest exposure to the local equity markets, notably through its 90/10 products in which it shares in market losses with clients.

It is right to be sceptical when a fund invests in its parent company, but Rassou justifies its 8% weighting in Sanlam by saying much of the exposure was picked up when the share slumped in the first quarter.

He says it has been much more successful than its competitors in Africa and has strong potential through the Shriram alliance in India. Sanlam’s purchase of joint control of the Moroccan-based Saham groups gives exposure to North Africa which its peer group lacks, while the controlling stake in short-term insurer Santam is also a unique asset.

Rassou says that Coronation is overpriced but the fund accumulated a modest 2% stake when it hit lower levels. Asset management, however, has been a theme in the 12% held in offshore (that is, not dual listed) shares, which include the US-based Old Mutual Asset Management. He says there are many insurers and asset managers on international markets which trade at tempting discounts to intrinsic value. American International Group is a long-time favourite and makes up about 3% of the total fund.

The fund is not a big holder of property shares, even though they make up 28% of the financials index. But it recently bought a few shares that had dividend yields north of 10%, including Rebosis and Delta. Rassou is also interested in a number of bombed-out UK blue chips such as British Land. But he is sceptical about international banks, even those with a price to book as low as 0.5 (such as Barclays Plc) — this is usually explained by the lacklustre return on equity.

But he likes Investec, which also has a legacy book in the UK but has an excellent global asset manager and a solid private wealth business, as well as a good SA bank.