Financial Mail - Investors Monthly - - Analysis: Unit Trusts -

This deep value house had a sub­stan­tial loss of as­sets, to the ex­tent that this fund now has barely R5m un­der man­age­ment. There may be re­grets, as the fund is now about 20% ahead of the all share.

Port­fo­lio man­ager Jeleze Hat­tingh says the fund has taken prof­its from its high plat­inum and gold hold­ing though it has been buy­ing in the dips — An­gloGold Ashanti was in­creased from 1,6% to 2,6% of the fund. It is now the only re­sources share in the fund’s top 10. In June Sa­sol, the largest hold­ing in the fund, was sold. Hat­tingh says Sa­sol fell out af­ter its re­cent up­date, but the El­e­ment team had lost faith in man­age­ment when its prom­ises about the eth­yl­ene cracker in Louisiana did not come to fruition. M&R and MTN came into the top 10. In­vestec fell out.

The fund is over­weight in re­sources at 22% of eq­ui­ties as well as in fi­nan­cials at 25% (par­tic­u­larly Standard Bank and Old Mu­tual), but un­der­weight in in­dus­tri­als at 53%. Lo­cal eq­ui­ties make up 38% of the fund. The fund has 10% in prop­erty, most in high yield­ing Delta Prop­erty Fund — with a for­ward yield of 14% and its sister com­pany Mara Delta.

Vuk­ile also makes the top 10, though the hold­ing has been re­duced. Hat­tingh was con­cerned Vuk­ile’s in­ter­est in UK prop­er­ties via At­lantic Leaf had not been prop­erly priced by the mar­ket — re­main­ing steady while other UK prop­erty plays fell 30%-40%.

El­e­ment Bal­anced is one of the few bal­anced funds with a sig­nif­i­cant al­lo­ca­tion to pref­er­ence shares, of 8%. This is higher than the 7% hold­ing in nom­i­nal bonds. Hat­tingh says th­ese are at­trac­tive not only be­cause they are linked to the prime lend­ing rate but also be­cause banks such as In­vestec have made open ten­ders to buy back prefs at a dis­count. Af­ter Basel 3, prefs are no longer an ef­fi­cient way for banks to finance bal­ance sheets. She hopes the fund will soon re­alise a profit from its Abil prefs, which were writ­ten down to zero. El­e­ment will soon close the Abil side pocket which holds its Abil bonds as th­ese will soon be trad­able at ac­cept­able prices.

El­e­ment runs its global as­sets in-house and this fund has 15% in for­eign eq­uity and 2% in for­eign in­come via the El­e­ment Global Eq­uity fund. The eq­ui­ties are fo­cused on the US, which ac­counts for two-thirds of the fund, with names such as United Health­care, Or­a­cle, Ap­plied Ma­te­ri­als and Visa. UK names in­clude SABMiller and Voda­fone. SABMiller is con­sid­ered a safe bet be­cause of the GBP44 un­der­pin from AB InBev’s bid. The for­eign port­fo­lio has no re­sources, and just 10% in fi­nan­cials, with the rest in in­dus­tri­als.

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