PSG GLOBAL EQUITY FEEDER FUND
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Raging Bull Award for the Best (SA-Domiciled) Global Equity General Fund for straight performance over three years to December 31, 2022.
PSG’s Global Equity Feeder Fund is a rand-denominated equity feeder fund that invests solely in the PSG Global Equity SubFund, a sub-fund of PSG Global Funds SICAV PLC, denominated in US dollars. Over three years it delivered an annualised 17.75% a year in rands, more than 5% a year above its benchmark, the MSCI World Index. Remarkably, the fund returned 14.82% in 2022, when the index dropped by 12.73%.
Personal Finance put the following questions to fund managers Greg Hopkins, Philipp Wörz and Justin Floor:
Can you outline your investment process, referring to stock selection and regional allocation?
GH, PW & JF: Our process is research driven, long-term, benchmark agnostic and fundamentally bottom-up. We have been investing in global markets since 2008 by consistently applying our 3M (moat, management, margin of safety) investment philosophy.
We look to invest in companies where the underlying quality dynamics (moat and management) are significantly undervalued (margin of safety).
Some of the most fruitful investments are made in times of fear and uncertainty. Our approach tends to favour uncrowded areas where prices
and expectations are often low. We like to fish in less crowded waters. When investing in more cyclical sectors, we place strong emphasis on an industry’s supply side, and favour investments with highly asymmetric payoff structures: significant upside and little downside.
The fund diversifies across industries, currencies and geographies but has historically favoured regions with Western governance standards.
The year 2022 was one most investors would prefer to forget, yet your fund did remarkably well. How did you navigate the year, especially around the tech crash?
The fund had no exposure to tech shares during the sell-off in 2022, although tech was one of the fund’s largest exposures from 2015 to 2018. The zero-interest rate and low-growth environment in the late 2000s resulted
in tech company valuations rising to rather lofty levels and we exited our tech holdings in 2018, arguably too early. The onset of the pandemic added fuel to the fire, exacerbating interest in tech when more traditional industries had to temporarily cease operating. Entering 2022, we had observed hugely divergent markets for some time, where large parts of the markets were extremely overvalued, while other parts of the market were hugely out of favour, trading at bear-market valuation levels. We were able to allocate significant capital to companies where these dynamics were obscuring their quality characteristics and which were trading at wide discounts to intrinsic value. These opportunities tended to be in “older economy” areas such as financials, beverages, mining, oil and gas, and shipping.
What counters stood out for you in 2022?
The top contributors were Scorpio Tankers and Euronav (two of the world’s largest tanker shipping companies), diversified miner Glencore, Resona Holdings (a large Japanese bank, mainly focused on the retail market) and The Mosaic Company (one of the world’s largest producers of potash and phosphates used in the production of fertilisers).
How are you positioning the fund going forward?
We are finding good opportunities to buy stocks that are cheap, out of favour and that we believe will be the beneficiaries of the probable economic conditions over the next decade.
These include resilient global businesses and producers of scarce energy resources and materials. When we contrast the valuations of our portfolio holdings with market indices, especially in the US, we note the difference remains extremely wide – we hold stocks that are much cheaper than the widely owned growth stocks (the winners of the past) and those dominating passive investment strategies.