NAV on 2019/07/19
|NAV on 2019/07/18
|52 week high on 2018/09/05
|52 week low on 2018/12/28
|Total Expense Ratio on 2019/03/31
|Total Expense Ratio (performance fee) on 2019/03/31
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 -Mar 19
Global equity markets recovered strongly from the sell off last year (and particularly at the end of the year). In the quarter to 31 March 2019 the S&P 500 gained 13.1%, the MSCI World gained 11.9% with the MSCI EM lagging slightly, gaining 9.6% (all % in US$). The most surprising development in markets was the sharp rally in long dated developed market government bonds; the yields on US 10yr maturity bonds declining from 2.69% at year end to 2.41%. The yield on 10yr German bonds declined from 0.24% to -0.07%.
This view (expressed by the bond market) that the USA might be at the end of its interest rate hiking cycle boosted EM currencies and banks (in our case specifically Indonesia and Russia) but at the same time US financials also bounced sharply (11%).
This bounce in USA financials is perplexing to many investors (financials seldom rally when interest rates fall) but we ourselves used the sell-off in Q4 as a buying opportunity because: .
-On 1 January 2019 they were 20% cheaper than they were on 1 January 2018 (US bank share prices declined 17% during 2018 whilst earnings and shareholder value grew - refer our December 2018 quarterly report). -Banks and insurers have worked hard at changing the drivers of earnings and are a lot less interest rates sensitive than in the past, -But most importantly, we increased the exposure to banks that derive a large part of their earnings from emerging markets (eg Citigroup and BBVA).
The companies we are invested in reported good financial results, in particular TCS, Essent, Adira and TBC (4 of our largest holdings) but also others like One Savings Bank, Credicorp, Renaissance Re, Signature Bank, JP Morgan, etc confirming our view that the companies the fund is invested in have adapted to the new lower growth, low interest rate environment and taking market share from slower moving, still challenged competitors.
In terms of the fund the investments that contributed most to the strong performance this quarter were Essent (USA mortgage insurer), Yes Bank (India), Adira (Indonesia), Citigroup (USA) and Sberbank (Russia) whilst the investments that detracted were the more defensive holdings like Berkshire Hathaway, ICE and our investment in Norwegian savings banks with the largest detractor being Raiffeisen Bank (Asutria/CEE) which is being accused of money laundering charges (which are old and have been dealt with by the regulators).
Going forward a weaker $ will be good for most emerging market currencies, especially those countries that increased interest rates in 2017/2018 (particularly Indonesia and India) whilst the most challenged geographical area remains Europe where, despite seemingly attractive valuations, the fund has limited investments.
Besides increasing the investment in Citigroup we gradually divested from Bradesco in Brazil (as the market became over confident about new president Bolsonaro’s ability to push through reforms) and increased the funds’ investment in India to almost 13% bringing the funds’ total investment in emerging markets to 43%.
The investment in emerging markets sounds like a high risk call, in fact it is not. We know and have visited most of the companies we are invested in annually since 2003 and they have consistently grown shareholder value but due to the 2017/8 EM sell-off are undervalued. More importantly, a weaker US$ removes the risk of currency declines which normally is the biggest risk when investing in emerging markets. Important to note however is that the EM countries we are invested in generally have a combination of low debt/GDP, low budget deficits and positive or acceptable trade balances.
Globally the financial sector is at a low both in terms of absolute and relative valuation and hence we continue to e of the opinion that the current environment provides a good investment opportunity.
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.