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The funds most exposed to Capitec and PSG

As investors hold their breath.

The Viceroy report into Capitec that was released this morning had an immediate negative impact on the shares of the bank and its major shareholder, PSG Group. The market is obviously and understandably weary of the potential consequences, given Viceroy’s previous analysis into Steinhoff.

If there is some good news for investors, however, it is that local unit trusts and exchange-traded funds (ETFs) are not nearly as exposed to Capitec or PSG as they were to Steinhoff. Both counters have recently been trading on quite high valuations, and fund managers have therefore been less enthusiastic about including them in their portfolios.

Before the release of the Viceroy report, both PSG and Capitec were up more than 300% over the last five years. Many managers who held the shares have therefore taken profits and sold out of their positions.

It’s also worth noting that while Capitec is a member of the Top 40, it has a weighting of less than 1% in the index. It is therefore not a major constituent of market cap-weighted index funds.

The bank does however appear in a number of smart beta funds, particularly those tracking quality and momentum indices. These funds have some of the largest exposures to the counter.

According to statistics from Profile Data, Capitec appeared in 138 fund portfolios at the end of September last year, and PSG Group 97. This is in contrast to the 341 funds exposed to Steinhoff at the same time.

It is important to consider that the latest available information from Morningstar on comprehensive fund portfolios is either at December 31 2017 or September 30 2017. It is therefore not strictly up-to-date, but provides the best available snapshot.

Funds most exposed to Capitec
Fund Date % of Fund
Naviga BCI Worldwide Flexible Fund 2017/12/31 12.40
Naviga BCI Worldwide Equity Fund 2017/12/31 11.86
Satrix Quality Index Fund 2017/12/31 9.63
Satrix Quality Index ETF 2017/12/31 9.58
Tower Capital Equity Prescient Fund 2017/12/31 9.03
Ashburton Momentum SA Tracker Fund 2017/12/31 8.60
Momentum MoM High Growth Fund 2017/12/31 7.80
NMRQL SCI Balanced Fund 2017/12/31 7.19
NewFunds Equity Momentum Fund 2017/12/31 7.04
STANLIB Financials Fund 2017/12/31 6.26
Anchor Securities BCI Flexible Fund 2017/12/31 5.96
Huysamer Opportunity Prescient Fund 2017/12/31 5.36
BlueAlpha BCI Equity Fund 2017/12/31 5.11
Triathlon IP Fund 2017/12/31 5.06
Argon BCI Worldwide Flexible Fund 2017/12/31 5.03
Emperor IP Momentum Equity Fund 2017/12/31 4.86
H4 Focused Wealth Fund 2017/12/31 4.78
Ci Engineered Core Equity Fund 2017/12/31 4.53
GTC Passive Equity Fund 2017/12/31 4.44
FAL BCI Balanced Fund 2017/12/31 4.34

Source: Morningstar

Funds most exposed to PSG Group
Fund Date % of Fund
Naviga BCI Worldwide Equity Fund 2017/12/31 9.53
Naviga BCI Worldwide Flexible Fund 2017/12/31 8.42
MET General Equity Fund 2017/12/31 6.46
Autus BCI Opportunity Fund 2017/12/31 6.16
Anchor Securities BCI Worldwide Growth and Income Fund 2017/12/31 6.14
Anchor Securities BCI Flexible Fund 2017/12/31 5.87
BCI Value Fund 2017/12/31 5.74
Rootstock SCI Worldwide Flexible Fund 2017/12/31 5.56
BlueAlpha BCI All Seasons Fund 2017/12/31 5.50
Old Mutual Financial Services Fund 2017/12/31 5.18
Lunar BCI Worldwide Flexible Fund 2017/12/31 4.64
Sanlam Select Focused Equity Fund 2017/12/31 4.61
Integral BCI Equity Fund 2017/12/31 4.57
First Avenue Sanlam Collective Investments Equity Fund 2017/12/31 3.85
Nedgroup Investments Financials Fund 2017/12/31 3.70
Imara BCI Equity Fund 2017/12/31 3.53
Denker SCI Flexible Fund 2017/12/31 3.49
BCI Worldwide Opportunities Fund 2017/12/31 3.28
Select BCI Equity Fund 2017/12/31 2.88
SIM Small Cap Fund 2017/12/31 2.73

Source: Morningstar

The tables however show the funds most exposed to Capitec and PSG Group at that point.

It’s noticeable that the same two funds top both lists, and they are run by the same asset manager. This raises some questions about a lack of diversification, although it should be pointed out that these funds are relatively new and are still being established.

The Satrix Quality Index Fund tracks the S&P South Africa Quality Index, which selects and weights stocks on their return on equity, accruals ratio and financial leverage ratio. Capitec is the second largest constituent of the index.

The Viceroy report has however raised questions about the company’s financials, which would obviously impact on these metrics. This is a serious concern for quantitative analysts and index providers who have to rely on the accuracy of the financial information they are given.


Capitec is solvent, says the Reserve Bank

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Please take note that the 2 Naviga are long term institutional building block portfolios who already gained significantly since invesing, so no retail clients are directly affected and on a look through basis looking at the larger overall portfolios the potential impact is much much smaller.

I think it’s safer these days to get a big jam jar or sleep on the stuff!

The exorbitant high interest rate charged on small loans advanced by Capitec to the marginal and lower middle class S.A. clients are inappropriately opportunistic and are definitely worrisome. The loan approval and calculation method, the loan repayment recovery process and presumably the churning of such loans are furthermore questionable. It is wrong in so many ways to overcharge and profit through dubious schemes that borders on extortion from the mass poor market in S.A. It’s time to over-roll the S.A. credit legislation and regulations once again as it still do not protect the neediest of consumers adequately.

A lot of naughtiness about I fear – partuclualry from my old chinas in Stellenbosch. Come on ouens! Dis nie ordentlik nie.

What really beggars belief is that we and analysts etc trust the auditors results with our money. They also do not come cheap as companies have to use their services to verify the accuracy of the results to be published.

Now – are these auditing firms of such a low standard? are they incompetent ? are they really capable of trust ??

Methinks the large stock exchanges should start to disallow results as proper qualified audits from the offending auditing firms – That will surely put the cat among the pigeons and start to let them think a lot more before endorsing results. !!!!

Interesting that depite the report being on Capitec, the PSG share price is down by a bigger percentage!

Let me get the popcorns ready, I can wait to see and hear our seasoned analysts and market commentators going on and on, on how they saw this one coming all along

It’s already happening. Deon Gouws, CIO of Credo in London (ex Sanlam and RMB Asset Management) has done a Magda, tweeting that it took him just half an hour looking at Capitec’s financials to be sure it’s all a big scam. Of course, if Magda said it took her 30 minutes to see through Steinhoff, Gouws should have bettered this by claiming it only took him 25 minutes (or less – maybe just a couple of minutes of brilliant speed reading)on Capitec. Such BS.

Just like Viceroy tried to claim credit for the Steinhoff affair – but they were just followers after the fact.

I believe that one should NEVER trust an auditor, financial adviser, investment manager or accountant with your money. You’re better off to take it all to the nearest casino and gamble it away with the odds against you.

We all must LEARN to understand the instruments and to make your own decisions, and then to take responsibility for the consequences.

PSG is also connected to Christo Wiese. I was already expecting this as soon as they opted to sell PSG shares to cover losses in Steinhoff.

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