The Naspers conundrum
RISK AND REWARD: ASK ASSET MANAGERS
Hold too much in Naspers, and be exposed; hold too little, and risk losing out.
At the close of trading last year, the Naspers share price was R3 459. Recently it traded around R2 750 – a drop of over 20% over 2018. However, it’s still by far the biggest component of the local market. At end September Naspers was 21.72% of the FTSE/JSE Top 40, 18.23% of the FTSE/ JSE All Share Index (Alsi) and 22.72% of the FTSE/JSE Shareholder Weighted All Share Index.
As such, how do you manage it in your portfolio?
Single-stock risk
Absa Prime Equity Fund’s Dale Hutcheson says: “The Absa Prime Equity Fund holds half the benchmark weight in Naspers and it’s still a sizeable weight at over 10%. Holding positions of more than 10% in a stock is a challenge….”
Having that much of your portfolio in one company means if something unexpected happens, it’ll have a material impact on the fund as a whole.
If a fund doesn’t hold Naspers, however, it risks deviating materially from the benchmark’s performance.
Industrial funds
Naspers is almost 38% of the FTSE/JSE Industrial 25 Index, which most industrial funds use as their benchmark. Naspers has become so dominant in this sector that Satrix could no longer track this index for the Satrix Indi ETF. In March it changed its benchmark to the FTSE/JSE Capped Industrial 25 Index.
The table shows the 10 funds with the highest exposure to Naspers: industrial sector funds and index trackers.
Risk and reward
In one sense, industrial sector fund investors can feel good about this exposure: 10 years ago Naspers traded around R150 per share.
As such, in 10-year performance numbers industrial funds feature high on the list. However, as Naspers has come down over the last year, industrial sector funds are among the worst-performing local unit trusts.
Brian Pyle of the Old Mutual Industrial Fund grapples with the dominance of this single stock. At end September, the fund had a 28.6% weighting in Naspers – lower than the industrial index and the average of other funds in this category.
“I’m a little bit worried about the risk posed by Naspers, so I’m happy to be somewhat underweight. But because we are measured relative to both our peers and the index, it’s difficult to be too far underweight when we view the company quite favourably.”
SIM Industrial Fund
SIM Industrial Fund holds the most generous position in Naspers.
“We are of the view there is significant upside to the current share price as a confluence of factors have weighed on the share,” says SIM’s Andrew Kingston. “We manage risk by doing very detailed fundamental analysis, looking very broadly at the industry, and making sure there is a large enough safety net before investing under a range of different scenarios.”