NAV on 2020/05/29
|NAV on 2020/05/28
|52 week high on 2020/02/19
|52 week low on 2020/03/19
|Total Expense Ratio on 2019/12/31
|Total Expense Ratio (performance fee) on 2019/12/31
Sanlam Collective Investments
FTSE/JSE Capped SWIX Index
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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.
Nicole joined RMB Asset Management in 1997 after spending two years in London working for JP Morgan and Kleinwort Benson. Nicole is part of the Non-Consumer industrials research team specialising in the IT, telecommunications and media sectors and is the portfolio manager for RMB Asset Management’s Worldwide teletech unit trust.
Saul joined RMB Asset Management in 1999. He has experience analysing the technology, retail and transport sectors of the JSE. He is currently the joint portfolio manager of the RMB Balanced Fund and the FNB Balanced Fund.
Sophié-Marié van Garderen
Sophié-Marié joined the company in 1993. She is a member of the non-consumer industrials research team. Sophié-Marié jointly manages the RMB Balanced Fund, FNB Balanced Fund and the RMB SciTech Fund.
Truffle SCI General Equity Fund - Dec 19
The year ended on a high for the global economy
Throughout the year the global economy was plagued by several uncertainties but late in the year some progress was made in resolving at least some of them. Firstly, tangible progress was made between the US and China towards reaching the first phase of a trade deal. Although the deal is yet to be signed, indications are that it should be possible and already some of the retaliatory tariffs imposed by both sides have been reduced, indicating a greater willingness to work together. Despite the consummation of this first phase deal we think the conflict between the US and China is far from over and the relationship is likely to remain volatile and confrontational.
Secondly, the Conservative Party landslide election victory in the UK means that Brexit will in all likelihood happen. However, the form and implications of Brexit still remain murky.
Further, although growth has slowed, notably in Europe, job creation in the US is still strong indicating that the economy is continuing to perform well even though the cycle is mature. This year, being an election year, and a key one at that, we believe that all efforts will be directed at keeping this momentum going. Economic data seems to indicate evidence of green shoots. PMI indices and earnings revision declines have started to improve in many regions. Chinese manufacturing has now shown expansion for a second consecutive month in December.
However, the global rise in nationalism continues and it is concerning that there are too many flashpoints around the globe. In particular, tensions in the Middle East have escalated between the US and Iran. A move away from globalisation and mutual cooperation could be a harbinger of tougher times ahead into the next cycle.
In South Africa progress has been made in facing up to its challenges
2019 was not a good year for South Africa. Throughout the year growth continued to be revised downwards and it is a great concern that the economy is incapable of creating jobs on a large scale as the unemployment rate continues to rise.
However, the good news is that there has, at last, been some visible progress in attempting to reverse the endemic corruption plaguing the nation as finally some arrests are being made. Much more needs to be done but at least a start has been made. In addition, the government is finally facing up to the challenge of rehabilitating the ailing parastatals.
SAA is now in business rescue, making it easier to make the really tough decisions, and Eskom has new leadership intent on returning the utility back to sustainable health.
Regarding the economy, there has not been much good news but bright lights amongst the doom has been the inflation rate that has continued to surprise on the downside and the currency that has remained resilient, notwithstanding the deterioration in our sovereign ratings. But it has to be said that any lasting solution to the major issues facing the country is likely to require some form of short-term austerity. Therefore, a period of disappointing growth over the next few years with a slow recovery remains a likely base case outcome. Domestic corporate profits are likely to be subdued for some time.
Global equities enjoyed a spectacular 2019
It was not surprising that with all the good news reported during the last month of the year that equity markets responded positively. The MSCI All Country World Equity Index ended the year on a very strong note, up 3.6% over the month and up a substantial 27.3% for the year. The S&P 500 index has always been a reasonable proxy for global equities and in 2019 the index tracked the World Index ending the year about 29% higher before dividends. This performance was driven, in the main, by price earnings multiple expansion from 14.5 to 18.2 (a 25% increase) rather than from earnings growth, which was negligible. These US valuations, which are comfortably above average, are already discounting an earnings recovery. Hence, any bad news could result in underperformance.
In a broader global context, although valuations in most regions are now above average post the year end global equity run, they do not appear to be excessively high.
Local equities delivered good, inflation-beating returns
Local equity markets underperformed global equity markets but comfortably outperformed inflation. The ALSI provided a 12% return and the SWIX 9.3%, bonds delivered a 10.3% return and cash provided a 7.3% return. In fact, the divergence between asset classes in 2019 was unusually low with listed property being the notable laggard, achieving only a 1.9% return over the 12 months.
There was significant return divergence across the major sectors of the JSE. Due to the strong price appreciation of the PGM basket over the year, Basic Materials enjoyed an exceptional year providing investors with a 28.7% gain over the 12 months. This performance was well ahead of the 8.9% gain from the Industrial sector and the only marginally positive gain of 0.6% from the Financial sector. It was no surprise that, given the strong performance from the PGM basket, the platinum sector was the top performing sector of the JSE for 2019.
The outlook for the ALSI is best considered via its key constituents. Domestically exposed companies comprise slightly more than half the Capped Swix Index.
Although many of their valuations appear reasonable, lacklustre growth prospects may limit any material re-rating of these companies. For instance, banks are offering dividend yields of between 5-8% but growth expectations have been continually scaled back as the economy struggles to generate credit demand. However, it should be noted that sentiment is negative and hence, improved domestic news flow, including further corruption clampdowns or an improved budget outlook could result in increased demand for domestically exposed companies. It’s also important to remember that a more buoyant global economy will offer some support to the rand and domestic based counters.
Many dual listed shares and resource-based shares do appear to have a more promising outlook than domestically exposed companies. British American Tobacco’s outlook has improved post a clamp down on vaping in the US. Tencent, which drives the bulk of Naspers and Prosus’ value, should deliver impressive earnings growth and is reasonably priced. Deficits in rhodium and palladium should maintain a high PGM basket price. The medium-term outlook for the diversified miners is a bit more unclear. On the positive side, there is room for a potential improvement in base metals if the global economic upturn occurs, yet on the negative side the iron ore price seems over extended and could retrace.
Bonds continued to generate returns well in excess of inflation and the property sector
The ALBI generated a total return of 10.3%, broadly in line with its returns of the last few years. Relative to inflation the domestic yields are generous relative to their own history and compared to most other markets. Although the impact of a potential downgrade by Moody’s in March 2020 is being partially discounted in SA bond yields, the country’s precarious fiscal position remains a risk. We prefer to take our fixed income exposure via high quality credit offering similar yields without duration risk.
Property remained the poorest performing asset class with a return of 1.9% (as measured by the SAPY) over this last year. Yields remain optically cheap compared to history where they have probably been overvalued. The tough domestic economy will continue to weigh on distribution growth and in fact result in negative growth for some counters like Hyprop and Redefine. Distributions in many counters remain overly high due to financial engineering, debt and overly high pay-outs. As distributions reach more sustainable levels or valuations improve, we will look to increase our position in this sector. Looking forward
The valuations for most global markets do not look compelling given their re-rating over the last year. Some markets like the US look more expensive than most.
Furthermore, the global geopolitical risks remain as evidenced by the recent escalation in tension between the US and Iran. However, we are still finding sufficient investment opportunities with generous risk adjusted expected returns. Hence, despite a continued murky economic and political outlook, we remain confident that Truffle will deliver inflation beating returns over the medium to long term.
We increased our exposure to diversified miners. Their balance sheets are healthy and they are offering relatively better value than many domestic counters. Our position in British American Tobacco was increased. The company’s valuation is cheap and it is facing less pressure from vaping in the US market. We increased our position in Naspers where the discount to Tencent is significant. Tencent was also trading below its historical average valuation. We have purchased some domestically focused counters which should benefit from self-help like Tiger Brands. We reduced our exposure to First Rand which was trading close to fair value and increased our exposure to Barclays Africa Group which was cheaper.
We reduced our exposure to Anheuser-Busch due to a revision of our expected earnings from the company. We took profits on our AngloGold Ashanti position. We reduced our positions in Remgro and Mediclinic as their valuations approached fair value.
Contributors and Detractors
The platinum group metal miners were the key contributors to performance given our significant position and the outperformance of the PGM basket over the last year driven by expected palladium and rhodium deficits. British American Tobacco performed well post the announcements of vaping flavours being outlawed in the US and an easing of regulatory pressures on the tobacco industry. Quilter performed strongly over the quarter in line with its competitors. It remains significantly cheaper than its competitors. Our underweights in MTN and Telkom also contributed to positive performance. Anheuser-Busch detracted from performance due to a poor trading update negatively impacting the share price. The domestic banks also detracted from performance when they came under pressure in line with other domestically exposed companies as negative earnings revisions continued. The Prosus share price was also under pressure due to concerns over them overpaying for a business in the food delivery space.
The Truffle MET General Equity fund shall be a Domestic General Equity Fund.
The portfolio will invest a minimum of 75% of the market value of the portfolio in equities at all times.
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 Maanger 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. Provdied 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 General Equity 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.