NAV on 2018/05/25
|NAV on 2018/05/24
|52 week high on 2017/11/21
|52 week low on 2018/04/04
|Total Expense Ratio on 2018/03/31
|Total Expense Ratio (performance fee) on 2018/03/31
Coronation Fund Managers Ltd.
FTSE/JSE Africa Industrial Index
Sarah-Jane joined the Coronation investment team in 2008 as an equity analyst. Her current responsibilities include co-managing the Coronation Industrial Fund and researching food producers and hospital stocks amongst others. Prior to joining Coronation, she formed part of the investment team at JP Morgan Asset Management in London where she was a European research analyst and then co-manager of their UK Smaller Companies Fund.
Coronation Industrial comment - Sep 17
Since inception, the fund has averaged an annualised return of 18.95% relative to its benchmark retuning 15.67%. Over 10 and five years, the fund has averaged 16.07% and 18.67%, outperforming its benchmark by 0.28% and 1.23% respectively.
The South African economy continues to be lacklustre. Relative currency stability, rate cuts and lower inflation should have offered consumers relief but a constant barrage of negative news flow has undermined sentiment. A lack of pro-growth policy means there is little reason to expect structurally higher growth but sentiment can swing quickly. Attention remains focused on the ANC’s elective conference in December although political infighting and procedural irregularities place even the event’s occurrence under threat.
Performance attributions over the past three and five years have been boosted by holdings such as Naspers, Mondi, Pick n Pay, Pioneer Food Group and MTN. The first two should come as little surprise given the coverage previously given to them in commentaries and their current strong share performance. More surprising is the positive contributions from the two domestic stocks, Pick n Pay and Pioneer, despite their recent weakness. These businesses have both been undergoing several years of significant restructuring as new management teams tackle cultural legacy and streamline organisations that had lagged competitors. We do not think earnings in either business are at normal levels and they continue to have a place in the portfolio. MTN is a stock where the fund had limited exposure until the last year and a half. The business fell behind in key markets like Nigeria and South Africa and an extensive management reshuffle created the opportunity to rebuild share and profits in key markets. Detractors from performance include Grindrod and Grand Parade Investments where despite relatively small exposures the stark underperformance of the shares has counted against the fund.
Deteriorating sentiment, earnings misses and share price declines have provided an opportunity to increase our stakes in some good quality domestic businesses. We have bought broadly in names including Spar, Netcare and Curro. Funding for these names has come predominantly from a reduction in the size of the Naspers position. This has not been an easy call to make. The Naspers investment case remains compelling with management improving focus on market dominant businesses and moving closer to monetising these. Tencent’s move into payments creates a market opportunity several times the size of gaming. The future looks exciting! However, we felt the absolute size of this position had grown too large and created stock-specific risk for investors in absolute terms.
The offshore exposure of the fund remains material. This is due to large positions in stocks like Naspers, British American Tobacco, Steinhoff, MTN and Mediclinic where we see attractive valuations. British American Tobacco (BAT) suffered some adverse regulatory news flow in the period as the FDA announced its intention to reduce nicotine consumption. BAT trades on a one-year forward PE of 15x, an attractive rating for a truly global defensive stock and in-line with many of the SA defensive businesses with single market exposure. The Steinhoff share price remains depressed with the share trading on a close to 10x PE in early October. A separate listing of the African retail portfolio has as yet done little to highlight what we see as a much undervalued ex-African retail rump. We see little reason to shift the core of the portfolio from these attractive holdings and have added to domestic stocks selectively where valuation has presented an opportunity.
Portfolio managers Sarah-Jane Alexander and Adrian Zetler
Invests in a broad range of domestic industrial shares.