FUND REVIEWS

Laurium Equity Prescient Fund, Absa Prime Equity, Ashburton Equity Fund, ClucasGray Equity Fund, Sasfin Opportunity Equity Fund

Joburg might not have some of the physical attractions of Cape Town but it is much closer to the majority of head offices and the majority of clients

Cape Town is still the centre of the SA fund management industry, and chances are that when you choose an equity fund it will be one of the large players such as Investec, Allan Gray or Coronation.

But there is a growing hub of managers in Joburg that are taking them on, and the majority of BEE managers, such as Mazi Capital, are based in Gauteng.

This week we look at five funds run from Joburg. It might not have some of the physical attractions of Cape Town but it is much closer to the majority of head offices and the majority of clients, whether institutional or high net worth.

Sasfin is establishing an interesting niche operation based around the old Frankel Pollak private client business it acquired. Most of us still associate Sasfin with leasing photocopiers, but in a few years, who knows? Sasfin is likely to build a more institutional profile since Errol Shear joined in from Absa about two years ago. His performance at the Absa Absolute Fund (and at a similar fund at Stanlib before that) makes his BCI Stable Fund a solid choice. His Opportunity Equity Fund looks interesting and worth a side bet.

The demise of RMB Asset Management was a blow to the Joburg investment community, though the team have spread out into a galaxy of managers — Stephen Brown and Paul Crawford to Fairtree; Mashuda Cassim to Cachalia Capital; and Royce Long and Richard Simpson to Obsidian.

RMB’s successor, Momentum Investments, is going into pure multimanagement.

But right now it is Andrew Vintcent at ClucasGray who is knocking it out of the park. In the Morningside SA Equity category he is second only to the personality cult fund known as Aylett Equity. Vintcent has just R1.6bn under management but he shares a team of 10 investment analysts with the R7.5bn ClucasGray private client business.

The fund doesn’t just focus on the lumbering large caps and it is small enough to take weighty positions in the likes of Reunert and Clover. This fund is a much more mainstream core equity fund than the ClucasGray Future Titans run by Brendon Hubbard, which in Strictly Come Dancing would be considered a show dance whereas Vintcent’s fund is more of a waltz.

Ashburton has in some respects filled the void left by the demise of RMB, as it is also wholly owned by the FirstRand Group. It often seems like a federation of businesses, in the mould of Fairtree, with a strong Africa equity business, an established multiasset private client business in Jersey and a fixed income shop in Cape Town (it might not be called Atlantic any more, but clients won’t be able to tell the difference).

Ashburton’s SA equity fund is run out of Merchant Place in Sandton from the same building as the old RMB, a suitably intimidating place. Like Claridge’s in London it has a lift man to take you to the offices. In fact, the traditional equity and balanced portion of Ashburton is quite small. The Equity Fund is just R435m but it probably deserves a larger market share.

Absa would have taken RMB’s No 2 position in Joburg — Stanlib is the largest — but its key balanced team of Kurt Benn and Greg Kettles are in Cape Town. Absa has weathered the trauma of the loss of Shear and has a competent equity team run by Stephen Arthur and Dale Hutcheson.

It has a confusing lineup of three SA equity funds — this month we look at the Prime Equity Fund, which has joined the general equity sector after many years in the somewhat moribund large-cap sector.

A short walk from the Absa offices in Alice Lane are the offices of Laurium Capital, which couldn’t be more different. Murray Winckler and Gavin Vorwerg had hoped to focus entirely on hedge funds but over time they have rolled out the main long-only funds, from a highly regarded flexible fund to a balanced fund and equity fund.

After the appointment of JP du Plessis, formerly with Prescient, as fixed income manager, Laurium was able to roll out a stable fund in December. But stock picking remains a core skill of the house and the Equity Prescient Fund is an excellent shop window into this.

The fund goes back to March 2014, making it one of the newer offerings from this shop set up by former Deutsche Securities executives Murray Winckler and Gavin Vorwerg.

Its history coincides with a poor period for equities, so its annualised return of 6.3% does not look exciting. It aims to have returns in excess of the benchmark (now the capped Swix) over rolling two-year periods. And perhaps controversially it has a hedge fund-style performance fee — 1% basic and 15% of the return in excess of the capped Swix, capped at 2%.

Laurium’s top holdings do not differ significantly from its peers — Absa is a larger holding that Standard Bank and top 10 shares include Growthpoint, TFG and Investec.

Winckler says the group is small enough to take an event-driven approach: it bought some Capitec at about R85 when the price fell and sold again at R115. And it bought into MTN when it slumped after the Nigerian fine.

It is adding AB InBev now that there are attractive discounts for global consumers.

It is also accumulating UK property share Hammerson as it is on a 55% discount to NAV.

Winckler says the fund is entirely benchmark agnostic but it has owned Naspers as it is on a 40% discount to its valuation of the sum of the parts. But it goes right down to smaller caps such as Hudaco, Distell and Transaction Capital as well as small property shares such as Equites and Stor-Age.

There was a strong resources theme with shares such as Sasol, BHP, Anglo American and Mondi, while Exxaro was one of the tactical trading positions now out of the portfolio.

Winckler says he is looking closer at telcos through MTN and Vodacom.

Absa has three equity funds — Select, which is the broadest and least index cognisant, the more index cognisant Core, and Prime Equity.

The last-named fund was previously the large-cap fund and still focuses mainly on the top 50 shares, but not in a closet-tracking approach. For a start, it has the latitude to look at the top 80 shares.

The lead portfolio manager is Dale Hutcheson, a prize-winning analyst at Credit Suisse. He is backed by Stephen Arthur, a former senior portfolio manager at UAL and Nedcor Investment Bank.

Hutcheson says the portfolio reflects a cautious view of global economic prospects, with a focus on liquidity. It is overweight Mondi and has accumulated Sasol in expectation of a higher oil price.

Almost a third of the fund is made up of three shares: Naspers, BHP and Standard Bank. And it has made some contrarian picks relative to its peers, such as choosing Vodacom over MTN and Sanlam over Old Mutual. Hutcheson says the gains from the Old Mutual Zimbawean operation will not recur and he doesn’t believe the market has recognised this. Even the fund’s Nedbank holding is unusual, as most managers, depending on their style, prefer either Absa or FirstRand.

The fund’s main off-benchmark holding is KAP, the industrial conglomerate which owns stalwarts such as PG Bison. Another, now sold, was the palladium metal exchange traded fund. One that has been disappointing this year was insurer MMI.

Absa is the biggest Naspers bull around. It makes up 16% of the fund. Hutcheson says he likes the closed-architecture environment of Tencent, which keeps out Western competition, and that it has valuable social gaming properties. He is pleased that the fund has not had food producers such as Tiger Brands, which have been victims of low inflation.

But retailers such as Mr Price, Shoprite, TFG and even Woolworths, at these prices, look interesting. The fund doesn’t own Absa shares right now.

The fund has been open since December 2011, and it is the shop window into Ashburton’s equity and balanced team, run by Jason Forssman; Suvasha Kander is the co-manager. There is a small team of six analysts. After a disappointing 2017, the fund was in the top half of the equity category ahead of stalwarts such as Prudential, Old Mutual Investors and Coronation Top 20, as well as Foord. The best recent buy has been Mr Price, which Forssman says only took place after extensive top-down research.

As well as tapping into the economists in the FirstRand group, Ashburton recently set up an asset allocation advisory arrangement with Fidelity, the world’s largest independent active asset manager.

Mr Price was chosen after an analysis of domestic retailers based on factors such as financial position and credit exposure. Forssman says Ashburton is a quality house, which explains why it has a heavier weighting in its own holding company FirstRand than in Standard Bank, and it has a hefty 5.6% in Sanlam, higher than even Absa Prime’s 3.9% though it has a higher weighting, of 22%, in resources than in financials.

Forssman says there are no offshore holdings in the fund so far, but it will be useful in the long run to invest 20% offshore to make up for gaps in the JSE’s sectors. Technology is the most obvious gap.

Forssman says ratings have deteriorated with the all share one-year forward p:e of 13. The top contributors last year were Anglo American, BHP, South32 and FirstRand, as well as Mr Price. But it didn’t avoid bombs with Resilient, Mediclinic, Naspers, Aspen and BAT all hurting.

The fund is run by ClucasGray Asset Management, a joint venture between private-client fund manager ClucasGray and portfolio manager Andrew Vintcent.

The Equity fund was a finalist in the Morningstar Fund Awards, coming narrowly second to Aylett Equity.

Vintcent looks at both top-down and bottom-up factors; he foresees a weaker dollar, which should be good for global growth. There is also benign consumer credit extension and lower food inflation. But for as long as the economy remains difficult he is maintaining an overweight position in the banking sector.

The fund does not have offshore holdings, other than JSE rand hedges.

Vintcent says his portfolio reflects a range of different opportunities. There is the old trick of unlocking discounts in holding companies such as Zeder, Sabvest and Long4Life and shares with compelling valuation, even if earnings disappoint, such as Absa, MMI and MTN. There are also higher-quality shares at a reasonable price, such as Naspers, Old Mutual and Massmart, as well as some exposure to shares that will benefit from a steadier global economy, such as Grindrod and Sasol.

Vintcent says 35% of the value of the fund is in shares with a market cap of less than R20bn. But he is showing cautious interest in some fallen angels. Though Standard Bank has outperformed British American Tobacco by 280% in the past few years, he says, it is time to increase the holding in the cigarette giant.

Sasfin already has an eclectic equity fund run by radio personality David Shapiro. And back in August 2017 it launched the Opportunity Equity Fund piloted by Errol Shear, a newcomer to the team.

Shear has a more institutional background than Shapiro and while he is bestknown for Absolute Return or Stable portfolios he also has intimate knowledge of the equity market.

Shear calls himself a pragmatic value manager, certainly not deep value, and many of the picks he has made might also be made by so-called “quality” managers including Remgro, Bidcorp, Standard Bank, Richemont, Reinet and Anheuser-Busch.

He says share prices reflect the reality that economic growth is poor and won’t get much better with administered prices increasing. And this is compounded by issues in Africa, which has not proved to be the high-margin nirvana many expected, as Shoprite has shown.

Naspers is the largest fund in the portfolio, though at a relatively conservative 8.1%. Shear is confident that management can unlock the discount, and they have taken the first step by unbundling MultiChoice. He is also happy to hold his old employer, Absa, which has a 7% dividend yield. He has a modest holding in Liberty.

For international markets, where he doesn’t have the same expertise, he prefers to invest through exchange traded funds, primarily Sygnia Itrix USA and Itrix Euro Stoxx 50. Offshore assets make up 17% of the fund.

Picture: 123RF — TASHATUVANGO