Sam has been appointed head of the Unconstrained Strategies team at Momentum Asset Management and brings 16 years' of domestic and global investment experience to the firm. Sam was at Investec Asset Management until September 2011, where he held the positions of director, head of South African equities and portfolio manager in the Global Contrarian team. He started his career in the investment management industry at Allan Gray and moved to Abvest (now ABSA Asset Management), where he fulfilled the roles of portfolio manager, chief investment officer and, ultimately, chief executive officer, before leaving to join Investec Asset Management in early 2006. He headed a team of investment professionals responsible for well over R100 billion in equities across the full spectrum of portfolios, from pure equity to multiasset mandates. He was the lead portfolio manager and key decision maker for close on R40 billion in client assets, including the Investec Global Franchise Fund and Investec Cautious Managed Fund. He also managed the Discovery Equity Fund from its inception in November 2007.
Counterpoint SCI Value Fund - Dec 19
The All Share Index advanced by 4.60%, which reversed the decline in the previous quarter and provided a welcome return to the positive momentum of the first half of 2019. The advance was broad based and in terms of broad sectors, SA Industrials lagged with a flat performance for the quarter. Mid-Caps surged, with a 12.4% advance, while Small- Caps continued to lag with a 0.7% return. Small-Caps are down by 4.1% for the year. In terms of Equity sectors, the top performers were Platinum +47.0%, Pharmaceuticals +30.9%, Gold +26.1% and Chemicals +19.6%. The worst performers were Fixed Line Telecoms -49.9% , Beverages -15.0% and Household Goods -14.3%.
Emerging Market equities enjoyed a resurgence, as global investors responded positively to a de-escalation in trade tensions. In Q4, SA Equities advanced by more than other EM equities. The quarter was less volatile than the previous quarter but was dominated by increasing positive sentiment towards risk assets in general and equities more specifically. Domestically oriented equities, most notably Small-Caps, have not participated in the recent advance and valuations are very cheap relative to history. The decline in domestic equity valuations now discount very low expectations and represents a multi-decade opportunity for investors to participate in the recovery on a more rational basis. Current valuations are reminiscent of the early 2000’s, when negative sentiment towards domestic small and mid-caps provided a platform for high prospective returns in the ensuing years.
Policymakers and leadership have demonstrated a resolve to address the structural impediments in the fiscus and critical institutions. The process is underway and is taking time. For the moment, Moody’s seem patient and willing to grant additional time for policymakers to set the country on the road to fiscal recovery.
Domestic Equity valuations remain attractive relative to long term growth prospects. The Rand is likely to remain range bound and could even remain strong, as US dollar weakness persists and the US Fed continues the current monetary policy path. SA Inc equities are undoubtedly cheap and discounting very weak prospects. We continue to believe that we are entering a prolonged period that will suit stock-pickers and active managers.
The probability is high that equities, as an asset class, could continue to muddle through. Risk assets are hovering close to all-time highs but remain extremely vulnerable to either a recession or a sudden increase in risk aversion.
For that reason, we continue to advocate caution and conservatism, with adequate diversification across portfolios.
The Fund advanced by 4.33% in the fourth quarter. Performance was well ahead of the average fund and broadly in line with the market.
Relative Fund performance has experienced a positive turnaround in the last 31 months, as a change in market leadership has benefited our active, value conscious approach. In relative terms, the Fund has achieved first quartile performance over both 1 year and 2 years. Market conditions, particularly in the second half of 2019, have not been ideal for our style of value but the fund has mitigated this headwind with astute stock selection, conservatism and complete avoidance of value traps.
Stock and residual sector selection contributed strongly as the fund maintain our trend of avoiding or averting the worst performing securities and sectors. In equities, our very low exposure to Telecoms and the domestic consumer stocks added significant value. Individual stocks contributed significantly, led by our high exposure to Implats, Remgro, Goldfields, Mediclinic, Bat Plc and Sasol. Excellent stock selection was however dampened by cash drag and lacklustre global equity exposure.
Detractors were few but had some impact on relative returns. Our fledgling position in Woolworths and declining exposure to Reinet were the biggest detractors.
In a rare reversal of the trend since early 2018, our consistently high allocation to Global Equities was unable to compensate for a lower domestic equity weighting, as currency strength and global stock selection significantly lagged the domestic equity market.
In addition, our long held commitment to having above-average cash, resulted in lower participation during the fourth quarter rally
The fund positioning and strategy remains virtually unchanged. We remain relatively concentrated and meaningfully different to both the index and the average fund.
The market’s continued advance and the increasing disparity in valuations, presented an opportunity for some significant changes in our positioning over the quarter.
Changes include a modest increase in Sasol, Remgro and precious metals. We are steadily increasing our allocation to domestic consumer and small caps, off a low base. The direct and indirect offshore exposure of the fund remains high, despite a meaningful reduction at the start of the quarter. At the end of quarter, we started to rebuild a position in domestic banks after a period of rare divergence relative to domestic bonds.
The recent changes represent exceptional value and are contrarian in nature as certain stocks remain out of favour.
Cash weighting remains above average. US equities are closer to the top of the cycle and market leadership is very narrow. Equity markets remain vulnerable to a swift sell-off. As always, we remain vigilant and ready to deploy cash as opportunities unfold.
The portfolio will be a specialist equity portfolio with a 'value' bias and will consist of financially sound equity securities listed on exchanges and assets in liquid form. The portfolio may invest in listed and unlisted financial instruments that will only be limited by the statutory limitations placed on the inclusion of financial instruments in portfolios. At all times at least 80% of the portfolio's investments will be in listed equity securities. The manager may from time to time invest in participatory interests in portfolios of collective investment schemes registered in the Republic of South Africa and which are consistent with the portfolio's primary objective.