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‘We are very pro-African growth and quite positive on China’

Devin Shutte of MyWealth Investments: ‘I think we will see some moderate strength come back to the rand as soon as this year.’

 

RYK VAN NIEKERK:  Welcome to this market commentator podcast, Moneyweb’s weekly podcast for interviews with leading investment professionals.

The guest this week is Devin Shutte, [CEO]] of MyWealth Investments. Devin, welcome to the show. Just as a start, MyWealth Investments is the old Regenesys Investments, and the name changed this year. But can you just give us a bit of a history – where do you guys come from?

DEVIN SHUTTE:  Absolutely. Thanks Ryk, and hi. Just briefly, Regenesys Investments, which changed its name to My Wealth Investments, was born out of a premise that private investors need to take more ownership for their investments. We are owned by the Regenesys Business School based in Sandton.

Really the rationale behind it was quite simple. It’s that through education on financial markets and investment options we are able to equip and skill people to be able to make more informed decisions on investing. What we did was we coupled the education side, which is through short courses, seminars, things like that, that we run with the investment products that we offer in our asset-management arm.

RYK VAN NIEKERK:  Why did you change the name?

DEVIN SHUTTE:  It was just simply to avoid brand confusion, quite honestly. People were getting confused as to why a business school would own an asset management company. We also liked MyWealth as embodying taking ownership of one’s financial future. And it’s been well received by our clients.

RYK VAN NIEKERK:  And your target audience? Do you target students at the business school or can retail investors from outside also invest?

DEVIN SHUTTE:  Ryk, we target both, absolutely. So really what our messaging is, is that the financial markets are often quite intimidating for potential investors. We’ve got over 1 000 unit trusts to choose from, and how do you start your journey? How do you pick a partner to go with you in that regard? So we’ve integrated a lot of education into all the degrees we offer at Regenesys Business School, but private investors as well like the fact that we try and avoid as much jargon as possible and really just partner with them to make the best decisions for their financial future.

RYK VAN NIEKERK:  What is your investment philosophy?

DEVIN SHUTTE:  We are very much value investors, but we also run it with a bit of a flexible bias, Ryk. So we are very cognisant of the price we pay for our investments.

RYK VAN NIEKERK:  Would you see yourselves as contrarian?

DEVIN SHUTTE:  No, I wouldn’t say that. We place a high degree of importance on quality, but we are not prepared to buy quality at any price. And we’ve started to see some really good opportunities with some of the recent market volatility and weakness in certain counters.

RYK VAN NIEKERK:  We’ll come back to exactly the underlying investments you have. But, just on the topic of volatility, we are currently seeing a whole changing dimension, probably, of investment markets all over the world and volatility is the new status quo.

DEVIN SHUTTE:  Exactly. It’s been absolutely fascinating. It’s probably the way of putting it for a few months. But you are right, the drivers are changing as we speak. We’ve see the emergence of China in the commodity market over the past decade. That started to come into question as they re-balance their economy. We’ve been in this environment of incredibly low interest rates. Quantitative easing is still around in some parts of the world. And those will create certain imbalances in the global financial market system, and we’ve seen them work their way out in trade recently.

RYK VAN NIEKERK:  But there seem to be themes and they are short-term themes. A few months ago Greece was the min flavour of the week, and then Chinese growth or lack thereof was the next one. US interest rates has been one, EU growth prospects, concern about emerging markets and downgrades of Bric countries. And everybody is looking at the US economy that is starting to rear its head, but two years ago the US economy was in a shut-down. How should you approach investments in such an environment?

DEVIN SHUTTE:  Well, Ryk, it really much depends on what you are investing for. For our clients we are very much investing for the long term, so the real challenge here, exactly as you listed that shopping list of things to focus on in the short term, is to try and wade your way through the clutter and see what the big themes and the big drivers are going to be for equities going forward.

There are a couple that we believe do cut through what’s happened recently. We are very pro-African growth; we believe there is a lot of value unlock to come there. And we also are quite positive on China. We believe this rebalancing that we are seeing in their economy is necessary. We also would rather focus on the quantum of the Chinese economy, rather than necessarily the absolute speed of it. So whether it’s growing at 7%, 6% or 5%, the reality is it’s still a massive, massive player within the global economy, and will continue to add to its influence there.

RYK VAN NIEKERK:  Where do you see China? Do you see it becoming a big driver like the US is currently?

DEVIN SHUTTE:  I think so. If you look at what they are trying to do, they are trying to move their economy from being as reliant on manufacturing to more a consumer- and services-driven economy, which is exactly where the US is sitting at the moment. So we are already seeing the trend of a lot of manufacturing being moved to countries like India, which has population growth that is exploding, and will probably be a bigger country than China in the coming years. That’s a very interesting dynamic because, if you try and get your head around a Chinese consumer market that is growing and thriving, the numbers do boggle the mind. But I think we’ve always seen China synonymous with manufacturing and base metals – and those dynamics are changing in front of our eyes and we need to be adept at changing with them.

RYK VAN NIEKERK: You also said you were pretty pro-Africa. Where do you see value here?

DEVIN SHUTTE:  We like the companies that are able to operate effectively and arguably with as few bricks-and-mortar operations as possible because what we’ve seen is some companies get it wrong and it cost them a huge amount of money. So we like the logistics plays into Africa, we like some of the retail plays into Africa, but oftentimes with their South African operations being used as a springboard to reduce the costs of those expansions, [those] are usually the ones that are the most successful.

RYK VAN NIEKERK:  I just wanted to talk about your unit trusts quickly. You use selected or preferred asset managers as partners to manage some of these funds. Who are those asset managers?

DEVIN SHUTTE:  We do. Our preferred fund is the 36One MET Equity Fund. One of the reasons, Ryk, that we’ve gone with that is that we like the hedge-fund background and we like the fact that they are not simply buy-and-hold for eternity, but they have some flexibility in regard to how they approach their investments into the JSE-listed universe. So they are somewhat aggressive. They’ve got a great track history, and we are quite happy to advocate that our clients follow that philosophy.

RYK VAN NIEKERK:  What are the main holdings of that fund?

DEVIN SHUTTE:  They’ve still got their big holdings in Naspers – that’s still been a big driver of performance for them. You’ve got MTN, which is still a big one that hasn’t performed particularly well, but we are quite bullish on the long-term story there. So we are quite happy with what they are sitting in.

RYK VAN NIEKERK:  Why would investors invest in this fund and not directly via 36One?

DEVIN SHUTTE:  Ryk, what we do is we really try and partner with our clients and kind of unlock the jargon and the choice available to them. So our clients are looking for advice, our clients are looking for guidance as to where to start. Oftentimes our clients haven’t taken the first step in investing simply because they haven’t known what that first step must be. So our message is very much just start, even if it’s a small monthly debit order. Once you are investing, that starts to build confidence, you have a vested interest in it, and that continues to grow in itself and people are starting to build more capital for the long term.

RYK VAN NIEKERK:  In your weekly stock analysis newsletter you are very positive about Tiger Brands and, interestingly enough, Peter Matlare resigned today and the share price spiked quite nicely – but why are you so bullish on Tiger?

DEVIN SHUTTE:  I think one of the main reasons is that the recent negativity around it has pretty much been baked into the price – excuse my poor pun. But I think we are seeing that Dangote write-off coming to an end. I think that they’ve got massive brand loyalty as a company. We continue to see urbanisation within South Africa and the other geographies that they are active in, a lot of which is in Africa, and so we believe this company is very well positioned to grow with those themes of African growth, urbanisation, etc.

RYK VAN NIEKERK:  But it seems like they did burn their hands, to continue the pun, in Nigeria specifically. Do you think that risk has now been mitigated?

DEVIN SHUTTE:  Look, we’ll get the final numbers on the write-offs at the end of the year, Ryk, so there might be a little more pain for shareholders to come. I do think that the shares are already pretty heavily discounted from when that was first broken to the market. I think there is not a lot of risk left in it for shareholders, and we are quite confident that our clients are invested in it.

RYK VAN NIEKERK:  The PE is around 17 – are you happy with that?

DEVIN SHUTTE:  Yeah, we are. I think we are happy with a PE in the mid-teens if they are able to grow earnings to justify it. I think if you strip out what’s happening with Dangote, it is more than justifiable. There is a decent dividend yield coming through of about 3% and I have a feeling that that will start to progress as time goes by for shareholders.

RYK VAN NIEKERK:  And the reaction to Peter Matlare’s resignation?

DEVIN SHUTTE:  Yeah, we were discussing it in the investment committee meeting this morning. It’s not what you want as a CEO, is it, when the share is up 6% on the day you announce your resignation? I think what the market is telling us here is that it’s time for a new guard, time for someone who will steer Tiger in this next space of life, I guess you could call it, post Dangote.

RYK VAN NIEKERK:  Just one sector that many commentators do feel has some value left is the commodity sector, of course. What is your view on commodities and investment in the sector?

DEVIN SHUTTE:  Ryk, we are very selectively optimistic. So I think what you’ve got here is all those major themes at play that we spoke about – the US economy, China – really coming to the fore here. I think if you are investor there is arguably value but caution need to be applied here, very simply because we haven’t seen the bottom in the Chinese economy, we haven’t seen the bottom in these commodity prices that seem to weaken on a week-by-week basis. So until we see that, they are still somewhat speculative. But I do think that very soon what we are going to see is the supply-demand metric come into play, and I think we are going to see a lot of supply being taken out of the system as marginal producers start to go cash-negative and remove their supply from the market.

So I think those are going to be very interesting dynamics. I think we might see some M&A in the space and, you know, some of the underlying fundamentals for these commodities look good. As you know, it has often been quoted the miners are tough to invest [in], there is a lot of externality there. But some of these underlying commodities are starting to look attractive. We really like the look of platinum and the PGM metals as a play currently.

RYK VAN NIEKERK:  And the main investment target in the platinum sector – what would you say that would be?

DEVIN SHUTTE:  Well, we wouldn’t go for the companies, so we would try to get exposure with the metal directly, either through the exchange-traded note, which is rand, or offshore you are able to get exposure to that. And I think recently what we’ve had come out of Europe with car manufacturers, VW specifically and they might not be the last ones, show that we were going to get more of a focus emissions control. There is probably going to be wider and stricter control there and that should further bolster the demand for platinum.

RYK VAN NIEKERK:  But just looking at the share prices today, Glencore is down 11, close to 12%, under R20. Anglos R136 – intraday it hit R130. Obviously these are big companies, they are solid companies, in theory at least. They should rebound from this. Wht signals do you look for as a buying signal?

DEVIN SHUTTE:  I think what you’ve got to look for in the commodity complex will largely be indicated by the sentiment of the market to risk and to emerging markets. So I think when you see emerging-market currencies start to stabilise and possibly strengthen, that’s often an indicator of buying in commodities and increased risk appetite and the like. You are looking at these quality companies – you’ve mentioned Anglo and Glencore. Ivan Glasenberg came out recently and said these commodities are almost now being priced for a doomsday scenario. If that is the case, we definitely are going to have lower-for-longer commodity prices. But I don’t think that much is going to have to change in the global commodity dynamics for, as we spoke about earlier, supply to be constrained an demand to overtake that and push prices up quite significantly.

RYK VAN NIEKERK:  Just lastly, the exchange rate is under pressure, as are the exchange rates of many emerging markets. What do you foresee for the short and medium term for our currency?

DEVIN SHUTTE:  Ryk, maybe just to give a bit of quick context to that, we spoke about the themes coming out of the US Federal Reserve and China. What’s that done is create massive uncertainty and, as a result, quite negative sentiment for anything riskier which emerging markets and, by extension, their currencies are part of. I do think that the timing of potential strength in these currencies is going to be very difficult, but my view is that they are pretty significantly stretched at the moment. Ultimately, when things do settle down, when maybe volatility is back to more normal levels, I think global investors will continue to look for yield. The rand does offer it. We are in an interest-rate-tightening cycle now. We don’t quite know what the magnitude of that will be, but that does make the rand compelling. And I think we will see some moderate strength come back to the rand as soon as this year.

RYK VAN NIEKERK:  Thank you, Devin. That was Devin Shutte of MyWealth Investments.

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