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The South African funds exposed to Volkswagen

Local investors feel the shock of the plummeting share price.

CAPE TOWN – Over the last few days, shares in both Volkswagen and holding company Porsche SE have taken a pounding over the revelations that Volkswagen cheated on emissions tests in the US. The US Environmental Protection Agency announced last week that it had discovered that the car manufacturer had fitted ‘defeat devices’ that drastically improved emissions controls during testing.

The company’s reputation took a huge knock after CEO Martin Winterkorn was forced to apologise for having “broken the trust of our customers and the public”. This will almost certainly impact on sales in the US at least, but there is also the prospect that Volkswagen faces regulatory penalties that could be as high as $18 billion.

In addition, the US Justice Department has announced that it will be pursuing a criminal investigation, under its commitment to hold individuals responsible for corporate wrongdoing. This could result in further fines and even greater loss of credibility.

There is also the prospect of Volkswagen having to face class action lawsuits from customers who will argue that they paid a premium for clean diesel cars based on fraudulent test information. That could add millions of dollars more to the company’s potential liability.

Shareholders reacted sharply to the news, wiping more than $15 billion dollars off Volkswagen’s market capitalisation on Monday alone as the stock fell by nearly 20%. Porsche SE, which owns the 51% of the ordinary shares in the Volkswagen group, also saw its share price plunge close to 20% on the day.

The losses continued into Tuesday, with Volkswagen and Porsche SE both dropping a further 18% by late afternoon on the Frankfurt Stock Exchange.

While the investors to feel the biggest impact of this decline are likely to be in Europe and the US, South Africans have not been spared. Many local funds have exposure to either Porsche SE or Volkswagen, and in some cases, both.

Although it is very difficult to know exactly who held the stock when the scandal broke on Monday, the latest available holdings information shows that at least 17 funds held Porsche at the end of June 2015, and ten had Volkswagen in their portfolios. This list is however likely to be incomplete as the information available does not always show the underlying holdings in feeder funds and funds of funds.

Local funds exposed to Porsche SE at June 30 2015

Fund

Weighting

36ONE MET Equity Fund

0.65%

36ONE MET Flexible Opportunity Fund

1.19%

Autus BCI Global Equity Fund

4.13%

BCI Global Flexible Fund

2.62%

Coronation Global Emerging Markets Flexible [ZAR] Fund

4.52%

Coronation Global Managed [ZAR] Feeder Fund

2.67%

Coronation Optimum Growth Fund

4.20%

Counterpoint MET High Yield Equity Fund

0.65%

Nedgroup Investments Opportunity Fund

0.21%

NFB Ci Equity Fund

4.89%

PSG Balanced Fund

1.32%

PSG Diversified Income Fund

0.34%

PSG Equity Fund

1.90%

PSG Flexible Fund

1.27%

PSG Stable Fund

0.92%

Sanlam Pan Europe Fund

0.28%

SIM General Equity Fund

0.25%

Source: ProfileData

Local funds exposed to Volkswagen at June 30 2015

Fund

Weighting

Aeon Balanced Prescient Fund

1.70%

Ashburton Global Flexible Fund

0.70%

Consilium BCI Worldwide Flexible Fund

3.39%

db x-trackers DJ Eurostoxx 50 Index ETF

1.50%

db x-trackers MSCI World Index ETF

<0.50%

MI-Plan IP Global Macro Fund

2.12%

Nedgroup Investments Opportunity Fund

0.27%

Sanlam Global Equity Fund

1.43%

Sanlam Pan Europe Fund

0.50%

Stanlib Inflation Plus 5% Fund

1.76%

Source: ProfileData

Some managers contacted by Moneyweb either declined to comment or did not respond to questions about their holdings. However Jean Pierre Verster of 36ONE said that they had sold out of Porsche SE early on Monday when the news broke.

Chief investment officer at Autus, Willem de Vos, said that the Porsche SE holding in the Autus BCI Global Equity Fund was now 3.4%. They were however not making any rushed decisions on their position, but rather waiting for more clarity.

“The exact extent of the financial fallout will take weeks, if not months, to clarify and therefore it is difficult to tell whether the current fall in the share price might not present a buying opportunity into what we still consider to be a global automotive powerhouse,” he said. “Even at their worst, the charges and fines brought upon Volkswagen are unlikely to annihilate the company, but rather to force it to clean up its act. We will consider maintaining, selling or adding to our position as more reliable and complete details emerge over the next few days.”

He pointed out that a decline in demand for Volkswagens will also have to be picked up somewhere else.

“Ironically, a winner out of this longer term may be Elon Musk’s Tesla Motors, which we hold in our Worldwide Flexible Fund,” De Vos said.

Volkswagen’s share price peaked in April at just over €244. It had already come a long way off that by the time the US Environmental Protection Agency made its announcement, closing at €161.17 on Friday September 18.

On Tuesday it reached €111.35 in late trade in Frankfurt. In total, the share price is 54% down since that April high, and 34% down over the last year.

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Then there will be the class actions in USA and Europe. Presumably sales worldwide will take a huge knock. So profits will be replaced possibly by huge losses for quite a few years before everyone forgets. The loss of trust and confidence in the brand might even force them to be taken over or face a shut down. After all, who wants to own and drive a product that is made by people like this? It is not as if they made a mistake. What else is wrong with their products? They purposefully went out to design software to cheat and deceive the regulators and the public. Is this not the same as Enron, Bernie Madoff and co? The South African VW people say, apparently, that they have broken no SA laws. Well that might be so however they are selling the same cars designed and manufactured by people who knowingly produced a car that exceeded the USA pollution limits in some cases by a reported 35 times. So they are selling cars that pollute the SA air but because the SA regulations are not as tough, they can get away with it. A sad story of German corporate greed to sell cars at any cost it seems. What is the next suprise?

Once a cheat, always a cheat! So, what else do they hide or camouflage in their vehicles and business dealings etc. etc.?

what about other car manufacturers? Toyota a few years ago had an accelerator problem in the USA, paid the fine, fixed the cars and we all forgot about it. They concealed that fact too.
Storm in a teacup, someone will take the fall, some engineer who programmed it incorrectly, or some technician who used faulty equipment to test,, or the stats that say you don’t test each one just every 10th car, every other one was wrong all the 10th cars were right.

I agree. Intelligent investors will be monitoring this stock closely not to sell but to buy.

100% agree but I suspect this stock to fall even more
but then again you never know this scandal could take years for the company to recover…

No wonder Blue Chip shares on wall street are never Green.

Most involved or linked to arms manufacturing for wars,exploitation of labour worldwide,exploitation of the enviroment and for colonialisation.

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