South African-born entrepreneur Elon Musk recently said on Twitter that due to the relatively high inflation of late, it was better to own physical things like homes and stocks.
We wish to take Mr Musk at his word and would like to present several investment opportunities from the country of his birth. After all, South Africa is the fund capital of the African continent, home to several internationally known asset managers like Coronation Fund Managers and Investec. South Africa also offers the most listed companies of any nation on the continent.
One of the biggest - if not the biggest - stock funds on the continent is the “Africa Frontiers Strategy” run by Peter Leger at Coronation. The fund has USD 397.7 million in assets under management. In terms of performance, Leger’s fund was up an impressive 30.2% for the 12-month period ended last 31 January.
But several observers, including the author of this column (Capital News Africa, 14 June 2021), find Leger’s investment strategy a bit too risky, as almost 30% of the fund is invested in stocks listed on the Harare exchange in Zimbabwe. That means that with an allocation of USD 118 million, Coronation is one of the biggest players on the Harare exchange. Leger’s strategy also differs from other African funds in that he is barely invested in South Africa. That country accounts for just 2.5% of the fund’s holdings.
Allan Gray, another leading South African asset manager, has taken a different approach than Coronation. Allan Gray has made a name for itself in the country by offering fund-based savings plans to finance child education and retirement.
The “Allan Gray Equity Fund” clearly has a focus on South African blue chips. The country’s best-known stocks – Naspers, British American Tobacco, Standard Bank, Remgro, Nedbank, Sasol as well as Sibanye-Stillwater – are all among the fund’s top ten holdings. In line with South Africa’s stock market as a whole, the basic metals and financial sectors are overweighted in the fund.
However, as a result of the geopolitical crisis caused by Russia’s invasion of the Ukraine, Jacques Plaut, the fund’s manager, has reduced the exposure to Naspers. Through its Dutch subsidiary Prosus, Naspers is invested both in Chinese IT firm Tencent and in the Russian internet provider Mail.ru. Since the beginning of the month, Prosus’ share price is down 6.3%, while that of Naspers has shed 10.3%. “The large drop in the share price could be because of fears that the world is becoming increasingly divided which, in turn, has led to renewed concerns about the long-term value of Tencent,” said Jacques Plaut in his most recent market commentary.
Judging by performance, Fairtree Capital is among South Africa’s best fund managers. Yes, the return of the “Fairtree Equity Prescient Fund” was behind that of its relevant benchmark in 2021. But the fund has beaten that benchmark over the more relevant three-year period. In 2021, the fund returned 18.3% compared with the 23.1% returned by the FTSE/JSE Capped Swix All Share Total Return index. In the three-year period, however, the fund returned 19.6% compared with 11.3% for the benchmark.
According to the strategy, the fund’s managers, Stephen Brown und Cor Booysen, may invest up to 30% of assets in markets outside of South Africa. Such foreign investments are currently limited to the listed Naspers’ subsidiary Prosus (8.9% of assets) and the raw materials company Glencore Xstrata, which is based in Switzerland.
With respect to the fund’s other top ten holdings, one sees a preference for African metal and mining companies. These holdings include: Impala Platinum (9.3% of assets); Northam Platinum (5.5%); Anglo American (4.9%); Gold Fields (4.8%); as well as Africa Rainbow Minerals (3.7%) and BHP Group (3.6%).
In their latest market report, the fund’s managers write: “We continue to hold the view that global inflation will remain elevated for longer than market expectations.” This means that they are betting that commodity prices will continue to rise in this uncertain environment and that mining stocks will benefit as a result.
There are of course several other interesting South African asset managers like Stanlib, Prudential Managers, Investec, Absa and Old Mutual. Numerous international houses also offer funds whose investment focus is African stocks and which are distributed in Europe.
Among those providers are DWS, JP Morgan Asset Management, T. Rowe Price, Robeco, Threadneedle, Bellevue Asset Management and BPI, the asset manager of Spain’s Caixa Bank. Yet as each of these asset managers takes a different approach to Africa, investors should compare the approaches to see what is most suitable.