NAV on 2019/03/22
|NAV on 2019/03/21
|52 week high on 2019/03/19
|52 week low on 2018/03/28
|Total Expense Ratio on 2018/12/31
|Total Expense Ratio (performance fee) on 2018/12/31
Sanlam Collective Investments
South African--Multi Asset--Flexible
CPI + 5% calculated over a 1 year rolling period
No email address listed.
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Iain joined RMB Asset Management in 1993 after completing his studies and joined the investment team soon thereafter. Iain is the portfolio manager of the RMB Equity Fund, the RMB Industrial Fund and the FNB Growth Fund.
Charles heads the research division of RMB Asset Management. Charles previously spent nine years as a senior partner at a major firm of stockbrokers. During this time he was a member of the JSE and was responsible for portfolio management and research.
Jonathan du Toit
Truffle SCI Flexible Fund - Sep 18
Market overview Global economic growth is likely to slow into 2019 The global economy continued to experience non-synchronised growth across the three major economic zones. In the United States, growth remains strong as the Trump tax cuts fuelled strong internal demand. Although US interest rates are rising they are still low relative to history. The labour market in the US is very tight and we are seeing signs of building wage inflation. Output gaps conti nue to narrow and risk of further rate hikes seems high.
The European economies are enjoying steady growth however, growing trade disputes could dampen prospects for the export dependent economies. Chinese economic growth is expected to slow from a relatively high base largely driven by slowing infrastructure spending.
A further aggravating factor is the continued rise in the price of oil. If prices continue to rise from current levels it could trigger further pressure in emerging markets and weigh on global growth.
South Africa’s economic prospects remain weak The South African economy remains weak, largely driven by poor demand and self-inflicted structural problems. Disappointingly, the formal employment sector continues to shed jobs adding further downward pressure on consumption spending. The unwelcome rising cost of fuel driven by both an increase in the dollar oil price and the weak currency will also impact negatively on consumption.
The stimulus package recently announced by President Ramaphosa, although well meaning, is unlikely to have much impact on overall growth as it will be funded from within the existing budget and is relatively small compared to the size of the economy. Having contracted in the first two quarters of the year, it is likely that even the subdued forecasts of growth for the full year will prove difficult to achieve.
Negative sentiment towards Emerging Markets has impacted on local equities The disenchantment with emerging markets that became evident in the second quarter continued into the third quarter as the MSCI World Index outperformed the MSCI Emerging Market Index by about 6% over the quarter. Unfortunately, the South African equity market was one of the worst affected by the loss of confidence with only Greece and Turkey showing poorer year-to-date numbers in US $’s.
Local equities contracted in the 3... quarter with the most significant decline coming late in the quarter. The ALSI contracted by 2.2% over the quarter and by 4.2% in September alone. The resource sector continued to significantly outperform the financial and industrial sectors achieving a positive return for the quarter. However, this return was helped by a very strong recovery in the platinum sector off a low base with Impala and Amplats both enjoying a strong rebound. Year-to-date the 21% return from resources is well ahead of the financial and industrial sector largely driven by currency weakness.
Property continues to contract but bonds were steady The property sector continued to contract, falling by 1% over the quarter. The falls were not limited to the Resilient group of companies as Growthpoint, the industry leader, also had a poor quarter contracting by about 9%.
Bonds had a flat quarter producing a 0.8% return as long dated yields rose by about ¼% over the quarter.
The Rand had a poor quarter The rand had a poor quarter declining from 13.74 to 14.14 R/US$, a decline of roughly 3%, and faring similarly against the other currencies. At its worst the rand hit 15.4 R/$ but late in the quarter the currency did stage a welcome recovery. However, sentiment remains very fragile and further falls cannot be discounted. Fortunately, the rand did not suffer the losses experienced in the Turkish Lira or the Argentinian Peso.
Commodity prices remain largely flat to down except for oil Precious metals had a largely flat quarter with only Rhodium having a strong advance of about 14% over the quarter. Since June 2016 Rhodium has risen from 650 $/oz to 2589 $/oz, an advance of 300%. For the local producers the Platinum Group Metals basket price has risen significantly as a result of the higher Rhodium price and currency weakness. The platinum sector should produce significantly better results in the second half of the year. Base metals have on average declined over 2018 in US dollars and no major advance is expected until China resumes it historically high spending on infrastructure.
Against the trend of gold and base metals the oil price continues to strengthen helped by the recent re-introduction of sanctions against Iran. As the world supply/demand balance is currently tight further rises towards $100/bbl cannot be discounted.
The key risk to the SA economy is rising inflation The key risk to the South African economy is a currency induced increase in the inflation rate requiring a tightening in monetary policy. The latest inflation numbers to August have yet to reflect the impact of the weaker currency and the rising fuel price, and at 4.9% remains well within the inflation targeting threshold of 6%. However, the trend is now up and higher numbers must be expected in the months ahead. If the inflation number settles above 6% the Reserve Bank may be forced to raise rates. Given the fragility of the economy this would be most unwelcome and it remains uncertain how the consumer would respond.
Portfolio Positioning Equities Domestically focussed equities continued to underperform in the 3rd of 2018 on the back of negative sentiment toward emerging markets, as well as a slew of disappointing earnings updates which fell well short of market expectations. The repositioning of the portfolio earlier in the year away from expensively priced domestically focussed companies into attractively priced rand hedge counters continued to benefit the fund.
Notably, two of the biggest companies listed on the JSE being MTN and Aspen, suffered significant share price declines over the quarter of 18.8% and 34.4% respectively. Truffle has not held positions in either of these stocks.
MTN came under fire from the Central Bank of Nigerian (CBN) after allegations of not following due process in their dividend repatriation. As a consequence, they are now required refund the CBN $8.1bn. To make matters worse they were also hit with a claim for outstanding taxes by the Auditor General of Nigeria for an amount of $2.1bn. MTN believe they have complied with the laws and are reserving their rights in respect of the allegations. This is the second time MTN has come to blows with the Nigerian authorities and demonstrates that investors should be demanding a much higher risk premium when investing in Nigerian assets. From a fundamental perspective, what is more concerning is that 50% of MTN’s free cash flow (FCF) is derived from Iran and Nigeria. Over the last few years, access to this cashflow has been difficult due to country specific issues. MTN’s net debt to EBITDA at the holding company level is currently 2.9 times. Optically this is not particularly high, but if due to sanctions in Iran or regulatory intervention in Nigeria, MTN can’t access 50% of its FCF, the leverage effectively doubles to 5.8 times. This significantly increases the risk of the dividend being cut.
Prior to the results update, Aspen has been under pressure to deliver a set of results with good organic revenue generation and improved returns. Unfortunately, the latest results showed no evidence of improvement on either point. Worryingly, the declining trend of the Return on Invested Capital (ROIC) has shown no signs of abating, with the latest ROIC now below their Weighted Cost of Capital (WACC) resulting in negative value creation for shareholders. We also questioned whether Aspen were forced sellers of their Infant milk business in an attempt to reduce debt levels which had increased to uncomfortable levels.
Sasol, one of the biggest positions in the fund, continued to performed well over the quarter, with the share price increasing 9%. Despite its re-rating, we still see significant upside in the stock, as very little value is being placed on their ethane cracker project. Commissioning of the project has already started and will reach beneficial operation by the second half of 2019.
Over the quarter the fund also increased exposure to Anglo American, Anheuser Busch, The Vanguard S&P Value ETF, Ping An Insurance and Standard Bank. These increases were funded by sales in Indiabulls Housing Finance, British American Tobacco, Growthpoint, iShares Core S&P 500 ETF, Firstrand and Naspers.
Fixed Income The fund remains short duration and has no exposure to fixed rate long duration bonds. We remain focussed on the shorter end of the yield curve through floating rate notes where we continue to earn a significant premium to the longer end of the curve without the same duration risk. Inflation risks both domestically and globally are building with risks to the upside especially if the oil price remains at current levels. The strong US dollar and reduced global risk appetite and mounting local fiscal slippage concerns suggest risk to local yields are to the upside.
Contributors and detractors Top contributors for the quarter included Old Mutual, Capitec, Ping An Insurance, Mitsubishi Corporation and CF Industries. Detractors included Spire Healthcare, Naspers, Growthpoint Properties, Anheuser Busch and Netease.
The Truffle MET Flexible Fund shall be a Domestic Asset Allocation Flexible Fund.
The investment manager has substantial flexibility to vary the asset allocation in such a manner as he deems appropriate. The portfolio may also include participatory interest or any other form of participatory interest in collective investment schemes or other similar schemes. Where the aforementioned schemes are operated in territories other than South Africa, participatory interest or any form of participation in these schemes will be included in the portfolio only where the regulatory environment is, to the satisfaction of the manager and trustee, of a sufficient standard to provide investor protection at least equivalent to that in South Africa.
Nothing contained in this supplemental deed shall preclude the Manager from varying the ratios of the aforementioned instruments relative to each other (except as required by the Act), or the assets themselves, to maximise investment potential, should changing economic factors or market conditions so demand. Provided also that nothing contained in the investment policy shall preclude the Manager from retaining cash in the portfolio and/or placing cash on deposit in terms of the deed. Provided further that the Manager shall ensure that the portfolio includes securities and assets in liquid form, of at least the aggregate value required, from time to time, by the Act.
The Manager will be permitted to invest on behalf of the Truffle Flexible Fund in offshore investments as legislation permits.
The Trustee shall ensure that the investment policy set out in this Supplemental Deed is carried out. For the purpose of this portfolio, the manager shall reserve the right to close the portfolio to new investors on a date determined by the manager. This will be done in order to be able to manage the fund in accordance with its mandate. The manager may, once a portfolio has been closed, open that portfolio again to new investors on a date determined by the manager.