A patchy mile­stone year

With its re­turns geared pri­mar­ily to the JSE, the fund man­ager hasn’t had a great 2018, but there is cause for cel­e­bra­tion

Financial Mail - - MONEY&INVESTING - Stephen Cranston [email protected]

Corona­tion Fund Man­agers is dif­fer­ent from the soon-to-be-listed In­vestec As­set Man­age­ment (IAM) in sev­eral ways.

It is true that both de­rive a large pro­por­tion of their in­come from the SA pen­sion fund and unit trust mar­kets. But about 60% of IAM’S profit is sourced from over­seas.

It is build­ing up large sales teams in New York and Hong Kong to in­crease this.

Corona­tion al­ways had a more tight-fisted ap­proach to in­ter­na­tional ex­pan­sion.

It had a lead­ing po­si­tion in the global fund of hedge funds mar­ket 20 years ago but was not pre­pared to com­mit the re­sources to sus­tain this. About 45% of Corona­tion’s profit is from in­ter­na­tional prod­ucts, but this in­cludes global prod­ucts sold into the lo­cal mar­ket — Corona­tion’s fund man­age­ment ac­tiv­i­ties are all run from Cape Town.

Per­haps it is not too sur­pris­ing then that se­nior Corona­tion port­fo­lio man­ager Duane Cable de­fected to In­vestec, where he will have far wider ca­reer op­por­tu­ni­ties.

Corona­tion’s re­turns re­main pri­mar­ily geared to the JSE, which didn’t pro­vide much tail­wind, grow­ing by an anaemic 3.3% in the year to Septem­ber. Corona­tion has only one gen­uine hit out­side SA, its Global Emerg­ing Mar­kets Fund, which has had an­nual out­per­for­mance (al­pha) of 3.4% since in­cep­tion in July 2008.

Its African Fron­tiers

Fund has done even bet­ter — it cel­e­brated its 10th an­niver­sary in

Oc­to­ber with 8.8% an­nu­alised al­pha.

Corona­tion now man­ages R61bn, or just over 10% of its to­tal, for non-sa clients. Yet even this busi­ness is not grow­ing, with net out­flows of R4.2bn.

Corona­tion CEO

An­ton Pillay blames this pri­mar­ily on the move to in­dex funds, which ac­count for up to 45% of mu­tual fund flows in some cat­e­gories in North Amer­ica and Europe. Pillay says Corona­tion will soon be fish­ing in some big­ger ponds — it is ready to launch its Global Eq­uity and Global Man­aged (multi-as­set) funds in­ter­na­tion­ally now that they have five-year track records.

It was a patchy year for Corona­tion do­mes­ti­cally, where a heavy bet on MTN, an ag­gres­sive weight­ing in Naspers and ex­po­sure to UK prop­erty shares such as Intu hit per­for­mance. But its fixed in­come shop re­mains com­pet­i­tive and its Strate­gic In­come Fund re­mains in the top quar­tile.

Corona­tion con­tin­ues to suf­fer from high net with­drawals from pen­sion funds, but Pillay says the net out­flows of R22.6bn were about half the R43.7bn ex­pe­ri­enced in the pre­vi­ous year, and there were no sig­nif­i­cant man­date ter­mi­na­tions.

Pillay says he is com­fort­able with Corona­tion’s share of the unit trust mar­ket at about

14%, ex­clud­ing mul­ti­man­agers.

It is also ex­pe­ri­enc­ing lower out­flows in re­tail. They fell from R6.9bn to R4.2bn.

Ab­so­lute re­turn funds such as Corona­tion Bal­anced De­fen­sive have suf­fered as their sec­tor has of­ten pro­duced sub­cash re­turns even though it takes on ex­tra risk through eq­uity and bonds. Pillay says that all Corona­tion’s funds are in the first quar­tile over 10 years, but over five years the flag­ship Top 20 SA eq­uity fund is now be­low av­er­age and the medium eq­uity Cap­i­tal Plus Fund in the bot­tom quar­tile.

Corona­tion has al­ways adopted a vari­able cost model, leav­ing ac­tiv­i­ties not di­rectly re­lated to as­set man­age­ment to its part­ners.

Dur­ing the year there was a trau­matic part­ing with Mait­land, which was re­spon­si­ble for both its as­set ad­min­is­tra­tion and unit trust record-keep­ing.

As­set ad­min­is­tra­tion has been moved to Jpmor­gan in Ed­in­burgh and it has helped set up In­tem­beko, a new black-owned unit trust ad­min­is­tra­tor.

Corona­tion splashed out al­most R100m on mar­ket­ing to cel­e­brate its 25th an­niver­sary, a 26% in­crease. It has much to cel­e­brate as it be­came the first re­ally suc­cess­ful in­de­pen­dent unit trust man­ager af­ter it launched its mu­tual funds in 1996.

In spite of be­ing listed and widely held, it has pre­served its owner-man­aged cul­ture.

Thanks to re­duced vari­able costs its op­er­at­ing ex­penses were flat at R1.93bn.

Corona­tion’s over­seas am­bi­tions are so muted that it doesn’t need to keep the cash it gen­er­ates. In the year to Septem­ber 30 it paid a div­i­dend of 420c on head­line earn­ings of 420c.

Corona­tion is cer­tainly a share to con­sider if you ex­pect a re­cov­ery in the JSE, but for all its po­ten­tial, it will ap­peal more to div­i­dend seek­ers than to growth in­vestors.

An­thony Sedg­wick, a port­fo­lio man­ager at Abax In­vest­ments, says the share is fairly val­ued at a mar­ket cap of about 2.7% of as­sets un­der man­age­ment. He be­lieves that the busi­ness has weath­ered the volatile eq­uity and cur­rency en­vi­ron­ment very well. “I’m im­pressed by the way it has man­aged the tran­si­tion to its new out­sourced part­ners with­out adding to costs.”

He says that he does not ex­pect that there will be much growth, with lit­tle na­tional em­ploy­ment growth and con­tin­ued re­trench­ments in sec­tors such as min­ing, but Corona­tion has the balance sheet to weather this.

Hetty Zant­man

An­ton Pillay: Corona­tion will soon be fish­ing in some big­ger ponds

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