Thursday, August 27, 2009

This Month’s Fund Focus - ABSA Select Equity Fund

ABSA Asset Management offers 22 unit trust funds, many of which offer average performance. However, ABSA Select Equity fund has achieved a superior performance since it started in February 2004. Although its fund size is relatively small, it has a lower total expense ratio (TER). As long as its investment philosophy and fund manager remains the same, it is a unit trust suitable for longer-term investing.

Unit trust fund name: ABSA Select Equity Fund

Category: Domestic Equity - General
Benchmark: FTSE/JSE All Share Index (including income)
Inception date: 23 February 2004
Portfolio Manager: Errol Shear
Fund Size: R394 million

Fund characteristics:
The Fund invests in shares on the stock exchange with the intention of providing investors with long-term capital growth and escalating dividend income. Exposure to equities typically exceeds 75% of the fund and comprises a diverse combination of shares selected following independent research.

Fund objective:
Aims to achieve superior investment performance through careful selection of the best value the JSE has to offer

Total expense ratio:1.13%
Risk rating: Short-term (one-year): Medium high ; Long-term (five-year): Medium low
Daberistic Fund Rating: 4 stars

Top 10 holdings:
ABSA, Anglo American, BHP Billiton, Foschini, Mr Price, Naspers, Remgro, Sasol, SAB Miller, Standard Bank

Fund performance (annualised): This fund Sector average
6 months -0.9% 3.0%
1 year -4.4% -16.8%
3 years 11.1% 4.4%
5 years 24.4% 18.4%

Source: ABSA; FundData; data as at 30 June 2009

Suitable for investors:
Seeking long-term capital growth, with ability to tolerate short-term market volatilities
3-year plus investment horizon

Our recommendation:
Short-term (1-year): Lighten; Long-term (5-year): Hold

Daberistic Fund Rating: This is the rating developed by Daberistic Financial Services. It is based on the fund’s investment philosophy, fund manger’s academic qualifications and experience, the funds’ historic performance and risk characteristics.
¶ - poor;
¶¶ - inferior;
¶¶¶ - average;
¶¶¶¶ - superior;
¶¶¶¶¶ - excellent.

Our recommendation: This is the recommendation given by investors who want to invest tin this fund over the short- or long-term:

Buy – Investors should buy into this fund
Hold – Investors in this fund should continue to hold, but no more buying
Lighten – Investors should sell part of the holding
Sell – Investors should sell the entire holding.

Tuesday, March 24, 2009

Successful Investing Seminar

Following the successful conclusion of our first-ever Successful Investing Seminar in early February, we will be running this four-part seminar on Sucessful Investing again in April/May 2009, with Yours Truly being the presenter. This seminar targets:

- Investors who want to gain all-round, in-depth knowledge on the subject of investment;
- Investors who want to manage their own investment portfolios and be successful;
- People who want to study to become CFA;
- Finanial planners who want to become specialists in investment planning.

The seminar will consist of 4 four-hour sessions, from 9am to 1pm, on the following days:

Saturday 18 April 2009
Saturday 25 April 2009
Monday 27 April 2009
Friday 1 May 2009

Venue: Oak Park, 352 Oak Avenue, Ferndale, Randburg

The seminar will cover:

- The concepts of money and investments;
- Investments and financial planning;
- The basics of investments;
- Various types of investments;
- Fundamental analysis;
- The Warren Buffet Way of investing;
- Introduction to technical analysis;
- Behavioural finance and investor psychology;
- The practical steps of selecting an investment and putting together a portfolio.

Some comments from the previous participants:
"... Very informative ..."
"... The course is very comprehensive ..."
"... the course contents and the interactions among participants have helped me broaden my investment horizon ..."

If you are interested in finding out more about the seminar, please email

Regards, Kevin Yeh

Friday, March 13, 2009

ABSA Select Equity Fund

A fund that performs well relative to its peers in a down market deserves a closer look. ABSA Select Equity Fund is such a fund.

I have been following the development of ABSA Select Equity Fund for some time, and it's time for me to recommend it to investors who want to invest for longer term. It has outperformed the JSE All Share Index, and it seems to follow a very sound investment philosophy.

ABSA Select Equity Fund
Fund Manager: Errol Shear
Fund Size: R260m. Not a big fund, and the fund has not attracted a lot of attention, but I think as long as they do not change the fund manager, this fund will continue to perform well.

Friday, March 6, 2009

A tale of two life assurers

Over the past week a number of companies in the financial sector have announced their results. Two companies that have drawn my attention are Old Mutual and Sanlam. If you compare the performance history of these two companies, it makes quite a constrast in their investment case.

Sanlam is the second largest life assurer listed on the JSE. It was demutualised in 1998, and listed on the JSE at the price of R6 per share. On the other hand, Old Mutual is the largest life assurer listed on the JSE. It demutualised and listed on the LSE, JSE, ZSE, MSE and NSE. It listed on the JSE at the price of R14.10.

The dividend history of the two companies is as follows:

Year Sanlam Old Mutual
1999 25 20.77
2000 30 49.5
2001 35 72.3
2002 37 66.05
2003 40 56.01
2004 50 61.82
2005 65 61.34
2006 77 88.83
2007 93 102.07
2008 98 42.8

The closing share price as at 31 December 2008 is R17 for Sanlam and R7.60 for Old Mutual.

Assuming simplistically that the dividends are paid at the end of the year, the annualised rate of return produced by Sanlam and Old Mutual since listing are 15.61% and -0.25% respectively.

The return produced by an investment in Sanlam shares is respectable, while the return produced by an investment in Old Mutual shares is negative, both in nominal and in real terms.

The strategy followed by Sanlam, especially over the last few years, has been successful, and stands the company in good stead going forward. The strategy followed by Old Mutual has mixed results.

As an investor, I do not see the investment case for Old Mutual over the long term.

The above also shows how investors should not blindly invest in (large) companies due to their market capitalisation. Over the long term an indifferent investment approach can result in indifferent or pedestrian performance.

Monday, February 2, 2009

List of Recommended Unit Trusts Updated

We aim to identify asset managers that will provide consistently superior long-term returns for investors. Our recommendations are as follows:

Domestic Equities: Allan Gray; Tim Allsop of Polaris, which manages Nedgroup Investments Rainmaker Fund; John Biccard, who manages Investec Value Fund; Prudential (both Equity and Dividend Maximiser); RMB Mid/Small-Cap Fund

Domestic Bonds / Income Funds: Nedgroup Investments Gilt Fund; Metropolitan Gilt Fund; Henk Viljoen of Stanlib Bond Fund; Nedgroup Flexible Income Fund; RMB Income Plus Fund

Money Market Funds: Cadiz, Allan Gray

Domestic Prudential Funds: Allan Gray Balanced, Allan Gray Stable, Coronation Balanced Plus, Investec

Flexible Asset Allocation Funds: Investec Opportunity Fund

Property Funds: Stanlib and Investec

Global Equities: Allan Gray-Orbis Global Equity Feeder Fund; Coronation World Equity; Investec Strategic Value Fund; Investec Worldwide Equity Feeder Fund; Investec Global Equity FoF; Oasis; RMB International Equity Fund of Funds; Berkshire Hathaway

Global Asset Allocation: Allan Gray, Flagship

Happy investing!

Sunday, February 1, 2009

Our yearly model portfolio for 2009

We would like to remind investors of our rigorous investment process:

1. We conduct an analysis of the global politics and economy.
2. We analyse the South African politics and its economic prospects.
3. We evaluate the prospects of major industries in South Africa.
4. We decide on the industries we should consider to be included in our portfolio.
5. Shortlist companies we should consider. These companies generally have low PE ratios and good prospects.
6. Conduct a fundamental analysis on each company in the shortlist.
7. Place a value on the company using our proprietary valuation model.
8. Conduct a technical analysis on each company in the shortlist.
9. Decide on the individual stocks to be included in the portfolio and their weightings.

Like 2008, there are 12 shares in our 2009 portfolio (in brackets are the closing prices of 31/12/2008). Keen followers of our yearly model portfolios will discover that many of the companies in our 2008 portfolio are again included in this year's selection, as these companies still have good long-term prospects, excellent management teams, and above-average long-term operating excellence. In addition, their share prices have been depressed to a level that offers attractive returns over the medium to long term.

1. DAWN (R7.75) - Distribution and Warehouse Network is a manufacturer and distributor of building supplies. It has grown quickly over the last few years, with presence in many African countries. Its management is confident it will be able to grow its earnings this year. The falling fuel costs will help it contain its operating costs.

2. Grindrod (R15.30) - Grindrod is a shipping company with businesses expanding to related logistics services and financial services. Although the global economic slowdown has severely affected international trade, which has resulted in much lower shipping rates, the majority of Grindrod's contracts are fixed over longer term, which will help it cushion the impact of current unfavourable shipping rates.

3. Steinhoff (R12.55) - Steinhoff is an international manufacturer and distributor of quality furniture. It produces furniture in lower-cost markets such as Eastern Europe, then sells them mainly to developed countries, although now also expanding into the Asian markets. There is room for them to grow over the next few years. The global economic recession and credit crunch will cause declining furniture sales, so it will be difficult to maintain its earnings in its current financial year. However the group is cash generative, which will help it take advantage of consolidation opportunities in its sector.

4. Arcelor Mittal (R88.45) - Arcelor Mittal SA was previously Iscor. It was a public enterprise, in the 1990's it was partly privitised and listed on the JSE. A few years ago Mittal Steel (now Arcelor Mittal) became the largest shareholder, it then changed its name to Arcelor Mittal South Africa. The largest steel producer in SA, its share price once reached R265 in 2008, then fell by two thirds after the global financial crisis in the second half of 2008. The steel production volume will be down compared to last year, but the rand weakness will help prop up the steel prices, which will help mitigate the likely reduction in earnings this year.

5. Datacentrix (R2.80) - Its historical dividend yield is an attractice 10%. Datacentrix is an IT solutions company, which has been growing steadily over the last few years. Its share price has fallen sharply last year, like many other small caps.It will not escape the effect of the current economic slowdown, but its management is confident of maintaining its profitability.

6. Digicore (R4.40) - Digicore develops and provides vechile tracking technology and services. It started in SA, now it has developed its presence in Europe and Asia. New car sales in SA and around the world have fallen "off the cliff", which is sure to impact its business this year. However, its share price is now close to its NAV, and its long-term prospects are still reasonably good.

7. Famous Brands (R15) - Famous Brands manages and develops well-known fast food brands such as Wimpy, Steers, Debonairs, Fish Aways and Brazilian Coffees. Famous Brands should continue to grow on the back of increased market demand for its products. However, economic slowdown and lower consumer spending power will mean lower revenue growth for the group. Expected lower food prices and fuel costs should help it contain operating costs.

8. Iliad (R6.70) - Last year the share price of this mid-sized wholesaler and distributor of building materials has fallen by more than 50%, now with PE less than 5, presenting attractive value. Falling residential demand will affect its business, however this is to some extent mitigated as it should continue to benefit from the infrastructural spend by the public sector.

9. Pinnalce (R1.82) - In its 2008 financial year its revenue and profits grew substantially. Its increased product offering and consumers' demand for technology products such as GPS and lower cost notebooks should help it weather the current storm.

10. WBHO (R107.51) - This is our long-favoured company in the construction sector. In the second half of last year the share price of construction companies have fallen substantially, as investors expect lower future profits due to economic slowdown and reduced order book. However the order book of all construction companies is still healthy for the next 2 to 3 years, so the market may have over-reacted. WBHO's operating and profit history has been more consistent relative to other construction companies, so it will be more defensive in a downturn.

11. Investec (R41.99) - Investec is an investment bank, with businesses in SA, UK, USA, and Asia. As a result of the global financial tsunami and its mortgage business in the UK, its share price has fallen from the high of R106 in May 2007 to the current R42, a 60% fall. Its share price should be close to the bottom, which should rebound after a period of consolidation. The reason we have selected Investec instead of ABSA or Standard Bank, which are in last year's portfolio, is we believe Investec now offers a better relative value.

12. Northern Platinum (R20.60) - Due to the Eskom electricity supply crisis in the first half of 2008, the supply of platinum was threatened, causing the platinum price to race to USD2,200 an ounce at one stage, with the outlook for the platinum industry pretty rosy. But in the second half of 2008, with the rapid deterioration of the global economy, car sales took a nose dive, demand for platinum shrank, and the platinum price fell all the way to the current USD950. The merger deal with Implats was called off in January 2009, cuasing its share price to fall by over 20%. Its current PE ratio is 3.1, with a dividend yield of 16.8%, higher than the money market yield.

Happy Investing!