NAV on 2019/01/18
|NAV on 2019/01/17
|52 week high on 2018/09/03
|52 week low on 2019/01/04
|Total Expense Ratio on 2018/09/30
|Total Expense Ratio (performance fee) on 2018/09/30
Sanlam Collective Investments
Peer Group Average of the General Equity Sector
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Sam has been appointed head of the Unconstrained Strategies team at Momentum Asset Management and brings 16 years' of domestic and global investment experience to the firm. Sam was at Investec Asset Management until September 2011, where he held the positions of director, head of South African equities and portfolio manager in the Global Contrarian team. He started his career in the investment management industry at Allan Gray and moved to Abvest (now ABSA Asset Management), where he fulfilled the roles of portfolio manager, chief investment officer and, ultimately, chief executive officer, before leaving to join Investec Asset Management in early 2006. He headed a team of investment professionals responsible for well over R100 billion in equities across the full spectrum of portfolios, from pure equity to multiasset mandates. He was the lead portfolio manager and key decision maker for close on R40 billion in client assets, including the Investec Global Franchise Fund and Investec Cautious Managed Fund. He also managed the Discovery Equity Fund from its inception in November 2007.
Counterpoint SCI Dividend Equity Fund - Sep 18
SA equities experienced a volatile third quarter on the back of increased currency volatility, rampant US equity markets and widening disparity across global markets.
In the third quarter, the primary driver of returns was the weakness of the rand, as a consequence of sustained US dollar strength and EM contagion.
Market leadership was narrow, led by Resources stocks and selected sectors with the Financial & Industrial complex.
The All Share Index declined by 2.2% to reverse much of the previous quarter's gains. SA Resources led the way, with a 5.2% return, followed by Financials with 2.8%. SA Industrials were the hardest hit and caused a drag on the entire index, with a decline of 7.8%. Mid-Caps and Small-Caps fell by 1.7% and 2.2% respectively.
In terms of Equity sectors, the top performers were Platinum +25.5%, Non-life Insurance +16.6% and Life Insurance +12.4%. The worst performers were Pharmaceuticals -31.8%, Mobile Telecoms -12.8%, and Media -12.3%.
The quarter was dominated by a reversal in sentiment towards domestically oriented equities. Valuations have reverted to more reasonable levels. Domestic Policymakers and leadership have demonstrated a resolve and ability to address the structural impediments in the fiscus and critical institutions. The process is underway and will take time. The decline in domestic assets has led to less euphoric valuations and represents an opportunity for investors to participate in the recovery on a more rational basis.
Global Equity contagion remains a relevant risk. The CBOE Volatility Index (VIX) has been relatively stable after the spike in February. There are renewed signs of complacency, which does not augur well for the future. In addition, the trend in EM equities is negative. China (Shanghai) remains firmly in a bear trend and equity markets across the EM spectrum are showing signs of fatigue.
In contrast, the US Equity market continued to power ahead, led by Information Technology. Technology stocks have been the undisputed leader of the cyclical bull market since 2009 and there are no signs that the trend is reversing.
Domestic Equity valuations remain attractive relative to long term growth prospects. The Rand is likely to remain range bound and could strengthen steadily. SA Inc equities are once again offering pockets of value. We continue to believe that we are entering a prolonged period that will suit stock-pickers and active managers.
The probability is high that domestic equities, as an asset class, will muddle through provided that the risk of global contagion remains benign. For that reason, we remain cautiously optimistic and confident in our stock selection approach and ability.
The Dividend Equity Fund follows a long-term objective based approach. The fund’s primary objective is for total investment returns to exceed SA Inflation + 6% per annum, over the long run (7yrs and longer). Parallel and contributing objectives are for the fund to provide an income yield (after dividend withholding taxes) greater than the FTSE/JSE All Share Index (ALSI); to grow distributions ahead of SA inflation; and to achieve its objectives at a lower level of risk* than the ALSI.
The fund employs a ‘dividend growth plus yield' strategy and targets total returns. Long term views are taken on investments. The fund seeks to hold lucrative investments for extended periods to capture the benefit of compounding.
The strategy seeks to invest in quality businesses exhibiting the following attributes: - Sustainable real growth in future expected earnings and dividends - A track record of predictable cash flow and healthy profit and dividend growth - High prospective returns on capital with conservative use of gearing - Robust business model, customer value offering and competitive strengths - Management who display integrity, stewardship and continuous improvement - Forward dividend yield greater than the ALSI - Price which offers attractive absolute value, at a conservative margin of safety
Given the emphasis on predictable dividend growth the fund is unlikely to hold a significant weighting in Resource shares due to the highly unpredictable nature of future earnings and dividend growth in these businesses. Additionally, due to its yield objective the fund is unlikely to hold significant positions in low yielding stocks.
The fund is mandated to invest up to 30% of the portfolio in offshore investments plus a maximum of 10% in Africa (excluding South Africa) investments.
A minimum of 80% of the market value of the fund must be invested in equities.
The Fund generated a 2.0% return for the quarter, outperforming the fund’s benchmark, being the South African General Equity Peer Group average, which generated a negative 0.7% return for the period. Domestic assets were flat for the quarter, with offshore assets accounting for all of the fund’s return. Key domestic contributors included Santam, up 16.6%; FirstRand, rising 6.2%; and Old Mutual, up 14.5% for the quarter. Contributing detractors included Long4Life, down 16.5%; and Anheuser-Busch Inbev, which lost 10.6% over the period.
The fund’s offshore exposure stood at 27.5% at quarter end. Offshore securities rose 7.8% in Rand and 4.9% in US$ over the period. Key positive contributors in the offshore portion were TJX, rising 18.2%, Union Pacific Corp, gaining 15.5% and Johnson & Johnson, up 14.6% in US$. Contributing detractors included L Brands, down 16.1%; and Wells Fargo, which lost 4.5% in US$ over the quarter.
The fund has a 11.5% allocation to attractive yielding property stocks (local and offshore) which returned 2.9% for the quarter. To add some further yield to the portfolio preference shares are held amounting to 4.8% of total assets. The yield on these instruments is on average greater than 10%. We view this as attractive given specific future value unlock catalysts we have identified.
The average historic dividend yield of all the securities in the fund is 4.8%, with the prospective 12-month forward yield expected to be over 5%. Note that this is a gross yield which does not include local and offshore withholding taxes as well as management and admin fees.
We expect the fund to grow distributions ahead of SA inflation for the forthcoming 12 months, in line with its objective.
Our core style of investing predominantly in “quality” shares helped us control losses in a down market, producing positive returns despite the JSE All Share Index dropping 2.4% over the quarter. This style will remain in place, with its emphasis on earnings, and in particular dividend, stability and visibility.
Looking forward we see value in select areas, especially in South African equities, whose prices have fallen dramatically. We are looking to deploy cash in a disciplined fashion. We see select potential opportunities offshore, underpinned by stronger global GDP and manufacturing growth. Our current cash position sits at 10.7% (local and offshore combined). Given the myriad macroeconomic and political risks facing South Africa and the global economy we will be measured in the deployment of this cash, demanding a significant margin of safety in the purchase price of any investment.
The portfolio's investment universe will apart from assets in liquid form, consist mainly of equity securities and property securities, as well as preference shares. The portfolio will invest in shares with positive dividend characteristics and may use derivatives to hedge out any market risk on shares where the view on capital growth is not positive. The portfolio may invest in listed and unlisted financial instruments, in accordance with the provisions of the Act, and the Regulations thereto, as amended from time to time, as well as in offshore investments as permitted by legislation, in order to achieve the portfolio's investment objective. The manager may from time to time invest in participatory interests in portfolios of collective investment schemes registered in the Republic of South Africa and which are consistent with the portfolio's investment policy.