NAV on 2019/12/06
|NAV on 2019/12/05
|52 week high on 2019/05/03
|52 week low on 2019/08/14
|Total Expense Ratio on 2019/06/30
|Total Expense Ratio (performance fee) on 2019/06/30
Nedgroup Collective Investments (RF) (Pty) Ltd.
ASISA Category Average
Nedgroup Investments Financials comment - Aug 17
After a good July, the Nedgroup Investments Financials Fund continued with a good August, gaining 2%. For the past 12 months the JSE has gained 10.2% while the fund has gained 12.9% (gross of fees), making it one of the top funds (year-to-date) despite the negative environment.
The financial results reported by the banks and insurers in August (and July) confirmed most of what we’ve been writing about during the year. So, I thought it more appropriate to comment on why the fund has performed so well this year and for the past 10 years.
The lesson we’ve learnt over the years is that over time, but even more so in tough times, the quality of a business and its ability to compound shareholder capital is much more important than the accounting valuation. This sounds easier than it is. One needs a good database and loads of experience to be able to discern and test the quality of management teams.
For example, since 2003 Absa has underperformed the other banks, despite continuously being the cheapest on P/NAV and PE. Since December 2010 the share price of Capitec has gained 456% versus Absa’s 6% - this despite Capitec being much more expensive than Absa. To put that in context, since December 2010 FirstRand gained 184%, Coronation 275% and Sanlam 157% versus the JSE All Share Index’s 76%.
The true value of a business lies in its ability to grow shareholder value at a high rate, and with a high degree of certainty. As said before, forecasting this is not easy: we sold the fund’s last Capitec holding in April 2015 when we thought it was too expensive, and at this stage it seems we were wrong. However, as we sold down the Capitec position we did increase the fund’s holding in PSG.
We don’t know what lies ahead for South Africa or its financial sector in the next 24 months, let alone the next 10 years. We do know that if we continue to invest in managements running businesses that follow sound principles and allocate capital rationally over time, they will outperform their industry peers and (most probably) also most companies included in the JSE All Share Index.
The challenge for us as fund managers is: to keep monitoring managements’ behaviour to ensure they remain true to their DNA; to increase our investments when the share prices don’t reflect the potential returns (or decrease when the market becomes over confident); while diversi fying the portfolio enough to reduce the impact of mistakes we may make. The most important part is to make sure we value the quality of the business and management team correctly.
The portfolio is suitable for investors who require specific exposure to financial sector shares as part of their overall investment strategy , with maximum capital appreciation as their primary goal over the long term.