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.
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.
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.
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.
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.”