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|
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.