NAV on 2019/05/20
|NAV on 2019/05/17
|52 week high on 2018/09/05
|52 week low on 2018/12/28
|Total Expense Ratio on 2018/12/31
|Total Expense Ratio (performance fee) on 2018/12/31
Sanlam Collective Investments
MSCI World Financial Index ZAR (net of fees)
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Kokkie joined Sanlam Investment Management (SIM) in February 2004, as head of the international financial services sector, to help set up a conventional global investment unit. Kokkie previously spent 10 years with Old Mutual Asset Managers where he became a portfolio manager and Head of the Financial Services sector. He joined SIM from Coronation, where he managed the local Financial Services Fund and the Global Financial Services Fund listed in Dublin.
Denker SCI Global Financial Feeder Fund -Sep 18
The good performance of the majority of the holdings of the fund in the past quarter was undone in three sections in the fund:
- European banks were sold down due to Turkey and Italy. ING was down the most (10% this quarter and 28% year-to-date in Euro) - due to its exposure to Turkey and a fine related to money laundering (6-8 years ago in amongst others it’s Curusao business). - Despite the rising oil price, Russian banks declined due to fears about the effect of further sanctions against the country. - But the biggest loss was caused by Yes Bank (one of the smaller private sector banks in India) when the Reserve Bank of India (RBI) refused to extend the tenure of the CEO (Rana Kapoor). The RBI decision was based on his age (or rather length of tenure) and his lack of adhering to good corporate governance. Having said that, for three years in a row extensive audits by the RBI did not result in reclassifications of non-performing loans (NPL’s). Our stance has been that indeed, Yes Bank has grown its loan book aggressively, but this was done whilst the public sector banks were (and remain) in turmoil.
At times like this, we question why we invest in companies like these but in the end it’s a risk-return decision. It’s important to remember that the market has a tendency to overreact to both negative and positive news, and most of the time the event has only a very small effect on the ability of the company to grow shareholder value.
For example: The fine in ING’s case, and the write-offs from their Turkish exposure are relatively small and once-off. Similarly, sanctions against Russia will have limited effect. The upside in Yes Bank and Rana Kapoor’s track record was just too attractive to ignore and so the answer lies in the size of a position and the valuation. Hence, for the past few years we have focussed on reducing risks considerably (for example, at the end of 2017 we reduced the funds’ investments in Turkey to less than 1%).
Also, the subsequent returns are significant and repay one for the risk (as visible in the track record of the fund), and finally, the risks taken are always part of a diversified portfolio. Fortunately the fund’s investments in US banks, European insurers, Norwegian banks and smaller positions delivered good operational results and strong gains in their share prices. These positions include, amongst others, the Warsaw Exchange, Berkshire Hathaway (gained 14.7%), Essent and MGIC (two US mortgage insurers gaining 23%). Q3 was a bad quarter for emerging markets, yet Bradesco (the second largest Brazilian bank) as well as our investment in Mexican banks performed very well (Bradesco being amongst the top 10 performers this quarter).
Based on historical valuations and the track record of the companies sold down, the selloff in many cases was unwarranted - providing rational long-term investors good opportunities to invest and benefit from their short-term driven emotional peers. The most important trait in investing is to have the emotional strength to not get shaken out at the bottom when everybody around you is negative. In fact, successful fund managers focus on the long-term track record of how management grew shareholder value, measured against the current valuation. Hence we’re using the sell-off to increase the fund’s holdings in several Indian private sector banks and also Kruk (Poland). Kruk is one of the best debt collectors in the world, but now trades at its lowest valuation in 10 years after one of its competitors ran into financial problems. The market is incorrectly (in our opinion) assuming that Kruk has similar financial problems.
After 30 years of falling interest rates, the US 30 year bond market is signalling that the period of low interest rates has ended and a long period of normalisation to higher interest rates has started. This ushers in a new environment which will bring about significant change, which on the whole should be positive for the financial sector. Jamie Dimon (CEO of JP Morgan) says banks are entering a golden age.
In fact, US banks and European insurers have started reacting to this, gaining around 10%. We expect this trend to continue for a number of years as interest rates normalise.
The portfolio will apart from assets in liquid form, invest in participatory interests of the Sanlam Global Financial Fund established under the Sanlam Universal Funds PLC approved by the Irish Regulator in April 2004. The Sanlam Global Financial Fund will have foreign exposure of at least 85% at all times and will be actively managed. Subject to the investment restrictions, the Fund will primarily invest in equities traded in or dealt on the stock exchanges or regulated markets. The Portfolio may, where the Manager considers it in the best interests of the Fund, invest up to 100% of its net assets in securities traded in or dealt on the stock exchanges or regulated markets considered by the manager to be emerging markets.
The Trustee shall ensure that the investment policy set out in the preceding clauses are adhered to; provided that nothing contained in this clause shall preclude the Manager from varying the proportions of securities in terms of changing economic factors or market conditions or from retaining cash in the portfolio and/or placing cash on deposit.