Coronation: Overweight in SA equities

But comes in for criticism for its environmental, social and governance policies at its AGM.
There's excellent value in South African commodity shares says CFM CIO Karl Leinberger. Image: Supplied

Coronation Fund Managers (CFM), one of South Africa’s largest fund managers with R595 billion assets under management, is currently overweight in SA equities after being underweight for most of the last decade.

Addressing shareholders who were attending the group’s annual general meeting on Wednesday, chief investment officer Karl Leinberger said there is “excellent value” in South African commodity shares.

He believes decarbonisation will drive demand in some commodities for more than a decade and that this will be underpinned by the constrained global supply of these commodities.


Excellent value

CFM’s bullish outlook on SA equities isn’t restricted to commodities.

Leinberger said there is also excellent value in global stocks that are listed on the JSE such as Naspers, Quilter, British American Tobacco, Aspen and Bidcorp.

In addition, there is good value in domestic companies that are delivering better than expected results in the face of the pandemic and weak economic conditions. “Strong players, such as Shoprite, Momentum/Metropolitan, Famous Brands, Spur and Advtech are using the crisis to get stronger,” said Leinberger.

Avoiding property

One sector that holds no attraction for CFM is SA property, where the fund manager is a net seller despite the deep sell-off.

Leinberger said the sector is caught in the eye of the Covid storm and that there is likely to be a permanent reduction in space requirements for retail and office.

“This will materially undermine rental tension for years to come,” said Leinberger, adding that because of the leverage intrinsic to the property sector, there would be an “outsized impact” on equity.

Possible debt trap looms

CFM has a moderate exposure to fixed-rate SA government bonds where real yields are described as “very attractive”.

Leinberger said they are the highest in the emerging market universe. But he cautioned that there is a high risk of a debt trap in SA.

“Covid delivered a step change to the already deteriorating debt-to-GDP levels,” he said, going on to question whether government has the political will to impose and endure years of austerity.

Polite company

In contrast to previous years’ AGMs, which have tended to be fractious affairs involving battles over CFM’s remuneration policy and its approach to ESG (environmental, social and governance) issues, Wednesday’s AGM was a comparatively genial affair.

Only two shareholders raised any issues at the meeting. Mehluli Ncube, who advises a number of pension funds, described CFM’s remuneration policy as “vague and scanty” and said this is at odds with the ongoing shareholder engagements on the matter and the fact that as an asset management company, CFM plays an important role in ensuring its investee companies have appropriate remuneration policies.

“There is insufficient detail and disclosure in your remuneration report – it provides limited information with no insight into the variable remuneration metrics, weightings and performance levels,” said Ncube.

CFM chair Hugo Nelson told the meeting that “generally speaking, the vast majority of shareholders are happy” with the remuneration policy and pointed out that the non-binding votes on remuneration always get more than 75% support from shareholders.

Climate challenge

Ncube also questioned why no ESG targets were included in the remuneration policy.

The issue of ESG was also raised by Robyn Hugo of Just Share, a non-profit shareholder activism organisation.

She asked if any of CFM’s analysts have specific expertise in climate science.

“Coronation has demonstrated that it is well aware that climate change is a material financial risk, but it is a technically complex task to interrogate whether your investee companies are putting in place and implementing sufficiently ambitious and urgent emission reduction plans,” said Hugo.

Leinberger told the meeting that CFM is required to understand key issues in multiple areas, which are immensely complex and that its approach is to draw on global experts in these areas.

“We absolutely strongly believe in the risk from climate change,” said Leinberger.

“Our energy is on disclosure and transparency, which we think starts the ball rolling and then leads to getting companies to commit to reduce emission and we can then hold them accountable. Our efforts over the next 12 months will be about encouraging and improving this disclosure.”



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Whitewashed BS

The SA investment industry for the most part doesn’t even keep up with the top 40 index.

How do you choose your funds to beat that index over time?

Overseas, get yourself an Easy Equities account and then you have option to open AUD, USD account and start sending the money. ANZ Bank is doing damn well as is Afterpay in Aus!

I am aware of that. Merely pointing out that supposed performance from fund managers is trumpeted after cherry picking the top performing fund in their suite.

However, there is no way of knowing which fund will outperform the index upfront.

So if you take the index, you will always be the benchmark that others try to keep up with.

What is the big deal in being overweight in JSE equities?

Same question, what is the big deal in being seriously overweight in profits and loads of cash? if you invested in resources and PMG(s).

Plus many other equities went up by 30% to 50% had you bought in after the March 2020 Covid-19 correction.

Not the same for property companies.

The value of commodities are determined overseas, while the value of property reflect local issues. Coronation is basically bullish on the international economy and bearish on the ANC. They are “short” the ANC when they avoid property.

Imagine what this country could have been if we did not have the ANC to drag us down.

The Emerging Markets Index is at the beginning of a decade of outperformance after 12 years of economic depression and underperformance. ANC policies will cause us to miss this bull market, like we missed out on the previous one.

The ANC, with their communist mindset, dumps a nation with huge human en resource potential in poverty. They do this in the search of “unity” and consensus. What a deplorable bunch of hooligans.


Yup, agree on that one. My own Easy Equities USD trading account (many into US pharma stocks the past 8 mnths) has been doing OK. All returns in the green.

(I note you favor the AUD account more? Interestingly, EE charges US$4,60 for Zar conversions into USD….which is Zar67.
…while EE charges A$4,60 for Zar conversions to AUD…which equates to R52. So converting ZAR to AUD is about 25% cheaper than Zar to USD.)

True. And destruction of local wealth picked up speed after Zuma’s Nenegate circa 2015/16.

…and now we heard that Honorable Malema enjoyed tea with Hon. Zuma at Nkandla. With helicopter. Something unholy is brewing…

Or perhaps Zuma’s tea is REALLY outstanding, that it is worth a helicopter trip.

(CR should be worried..?) And if we get “President Ace”, wonder what the ZAR exchange rate will do…

Brilliantly articulated Sensei-short the ANC! Its a one way trade!

Mandela, Mbheki and Ramaphosa were excellent Presidents.

Zuma destroyed everything in 10 years.

Well done Coronation!

The so-called ”wealth and asset” managers did their utmost to create the ”weakening rand” narrative for years now- Invest offshore the rand is going to crack.

The Rand didn’t crack, it strengthened almost 25 % since its low around 19.50 against the US$ more than a year ago. Despite Junk status, repatriation of funds, the Rand recovered – why? because it’s an order market – the US$ buying orders have been filled (more than 80 % of offshore funds are still safely parked here in sunny SA), export prices and volumes increased, imports are drastically down as a result of a massive drop in capital expenditure.

The moral of the story – ”you buy the rumour and sell the fact”! Leads and lags are alive and well. The Rand Derivative market (the puts, yes the puts are getting exercised!)
Yield is king all over the world and mostly only found in the emerging market, market hence the massive interest in our ”carry market”.

The Rand doomsayers are comparing the USD/ZAR weakening trends as far back as 1975 etc. Nobody, yes nobody really got the full benefit of Rand depreciation for a period longer than 5-10 years anyway.

Investing offshore is not so simplistic – if you are close to and/or pension already, you will have to emigrate to enjoy the full real benefit of these types of investments. Repatriating these funds will just put you back on, at best par due to the local market conditions etc.

When last, if ever did you see a Wealth/Asset manager (in line with the FIAS Act) telling you that your offshore investment will be at a 100 % exchange rate risk. If you invested USD 1 million a year ago your mark- to – market loss today, will be more than Rand 4 million!

Diversification yes – Rand-denominated offshore equity funds/ equity portfolios. These are local unit trusts that typically invest in a fund or funds that is/are managed and domiciled in another country (feeder funds).

Being overweight in SA equities means your carriage is tied to the ANC’s horse. That’s a value destroyer right there. I only use the ZAR to live and buy trinkets I can drive, drink or hit a golf ball with, the rest goes into a currency managed by sane, reasonable, decent, accountable, qualified, stable, un-politicised, honest people i.e. not in Cadrezania

A good bit of optimism after 7 leans years thanks to the RET faction. I see some Saffas are deeply perturbed by the fact that the ZAR is holding and our markets are on the up – perhaps a tad too pessimistic, no? I’m certainly diversifying my assets but it’s great to feel a bit of home-grown hope!

A bit of a mixed article or at least the Coronation share price graph is out of place. What Coronation buy on behalf of their investors has little bearing on their share price. The share price is determined by how much in the way of fees they can extract from those that use Coronation as an investment platform. Your pension fund?

I wonder if Mr. Ncube will press the precious BEE managers on remuneration and ESG with the same vigor?

Value does not equate to profit.

End of comments.



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