We had the absolute pleasure of having the Absa Asset Management (Pty)Ltd) Absolute Return Franchise as our focus franchise for the most recent External Distribution Channels (EDC) lunches in Pretoria, Johannesburg, and Cape Town. Professor Eben Mare (Prof.) heads up the franchise and manages the funds with the support of Kanyisa Ntontela.
The pair interchangeably discussed their core views and painted a picture as to what the current macro-economic landscape looks like globally and locally. Prof delved into the high levels of uncertainty currently being experienced by market participants. President Donald Trump is keeping market players on edge by keeping everyone guessing on how the United States (US) will deal with their trading partners going forward. Further to that, the rhetoric coming out of the White House demonstrates a high level of political interference and statements around how the president views the Federal Reserve System (FED) chairman, making it difficult for the FED to focus on monetary policy without interruption. Prof says “policy uncertainty leads to bad economics and unstainable growth.” It is alarming that the International Monetary Fund (IMF) estimates that 0.75% will be shaved off growth on the back of trade tensions mainly arising from the US.
Kanyisa mentioned that US equities are largely expensive, but there are small pockets where one can still find value. She also gave examples of such stocks and where they have managed to derive that value. She says they bought Apple and Microsoft at good entry levels and low (Price-to-Earnings) PEs relative to their long term trading levels. Domestic equities are showing some value but there is an economic malaise and corporate governance issues. Kanyisa used Oceana as a local case study. She says that the company is “well placed in the protein food chain.” She outlined more than 15 metrics (such as PEs, Dividend Yield (DY), Net Asset Value (NAV), etc) they use to screen such an entity and therefore showed how Oceana currently qualifies as a value stock. For the last two years, they have been able to get multiple entry levels and attractive exit points, allowing them to make their desired return on the stock.
Given poor domestic conditions, stock picking in the Property sector is even more challenging. They like specific companies such as Equites, which is a logistics counter with a strong management team, a well-managed business which has also diversified its operations offshore. The team views Local Bonds as still attractive but with risks of drawdowns. The team keeps its cash in the form of the Absa Money Market fund, which enables them to have high levels of liquidity, at attractive rates.
It is worth noting that the Absa Inflation Beater Fund (which is in the stable of funds that the dynamic duo manage) won the Morningstar* Multi-Asset Low equity award this year. The Inflation Beater Fund is a specialist fund with a benchmark of CPI+3% that invests in South African markets participating in active asset allocation in equities, income-bearing and fixed-interest instruments and inflation-linked bonds. It endeavors to exceed general national inflation levels over the long term without undue risk exposure to the investor and is giving investors a great option at this point in the cycle. The fund is managed using an active asset allocation strategy within which the equity component is limited to a maximum of 20% of the total portfolio.
Source: ABAM (July 2019)
The chart above shows how the Absa Inflation beater fund has consistently performed in excess of the CPI+3% benchmark in the last 10 years. Local equity market performance has been disappointing in the last three to five years, moving away from the double-digit returns investors had grown accustomed to. There is comfort in knowing that one can still find great performance in products such as the Absa Inflation Beater Fund, which is still delivering both above average income and capital growth, despite a particularly tough macro-economic operating environment.
* The Morningstar awards recognize funds and asset managers that add the most value for investors within the relevant peer group over a 5 year period with emphasis on performance over the last year.
This communication has been produced by Absa Asset Management (Pty) Ltd (ABAM), an Authorised Financial Services Provider. The information contained in this presentation does not constitute an offer or solicitation to enter into any transaction, nor does it constitute any recommendation, guidance or proposal to enter into any transaction. The information is provided for illustrative purposes only and is not guaranteed. Past performance is not an indication of future performance. While every effort has been made to ensure the accuracy of the above information, ABAM does not accept any liability or responsibility for any loss, damage or expense incurred neither in relying on the above information nor in the use thereof, nor makes any representation as to the accuracy or completeness of the above information. Anyone making use of the information contained in this presentation does so entirely at their own risk.
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Collective Investment Schemes (CIS) are generally medium to long-term investments. Past performance is no indication of future performance, and actual events may differ materially from that which is contained in the information. The value of participatory interests may go down as well as up and past performance is not necessarily a guide to future performance. Fluctuations or movements in exchange rates may also cause the value of underlying international investments in a fund to move up or down. The value of, and returns from, any investments are uncertain and are not guaranteed and may fluctuate as a result of their dependence on the performance of underlying assets or other variable market factors. AFM does not provide any guarantee either with respect to the capital or the return of a fund.
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