Coronation Fund Managers, which oversees about R600bn in assets, says it has moved to an overweight position on SA equities across its domestic portfolios after being underweight on domestic stocks for most of the past decade.
The Cape Town-based asset manager says it is particularly bullish on SA mining stocks, which it believes will benefit as advances in renewable energy and carbon-free power solutions spur demand for certain commodities such as copper over the next decade.
Coronation also said it has switched to a neutral position on global equities and expects mediocre returns from this asset class over the next decade after an extraordinary run in the past 10 years.
“We are overweight SA equity in our portfolios,” Karl Leinberger, Coronation’s chief investment officer told shareholders during the company’s annual general meeting on Wednesday.
“We think there’s excellent value in the commodity shares and the miners that are listed on our market. Our portfolios are very heavily overweight miners.
“We think there’s excellent value in many of the global stocks that happen to be listed on the JSE — shares such as Naspers, Quilter, British American Tobacco, Aspen [and] Bidcorp.”
The JSE all share index has lagged international bourses such as the S&P 500 index over the past decade partly because structural economic and political woes curbed economic growth in SA, but also because of the outsize performance of internationally listed technology stocks. A decline in the value of the rand from about R6.60/$ at the end of 2010 to R14.79/$ now has also eroded SA stock market returns over that time frame measured in dollar terms.
Taken profits
Coronation expects SA equities to return 9%-11% annually over the next 10 years in rand terms compared with 6%-8% for global equities; 5%-10% for local property; 3%-9% for domestic bonds; and 4%-5% for global bonds. It expects SA inflation to average 5%-6% annually over that time frame with cash returning 4.5%-5.5%.
Leinberger said Coronation has taken profits on its global equity positions over the past four or five months after taking a “heavily overweight position” in the asset class at the height of last year’s global stock market collapse as the Covid-19 pandemic began to take hold.
“We currently have a fairly neutral position to global equities,” said Leinberger, adding that Coronation is concerned about “irrational exuberance” in global markets. “We do think that global equities have run very hard.”
Coronation remains “underweight” global bonds due to high levels of government indebtedness worldwide, which is likely to result in “a day of reckoning” in the future, said Leinberger. The asset manager has moderate exposure to SA government bonds despite local yields being among the most attractive worldwide.
“We think the risks of a debt trap are high,” he said. “We’re not expecting any bad news this year. In fact we’re expecting a very good budget in the next week but we are concerned about the medium to longer-term outlook. We think that the level of indebtedness has reached very dangerous territory.”
Property stocks
Moody’s warned on February 8 that SA’s debt-to-GDP could reach 100.7% by the 2022/2023 fiscal year, from about 81.8% now.
Coronation is also negative on SA listed property stocks, many of which have been hit hard by rising vacancy rates due to Covid-19.
“We think that all office and retail space users around the world are going to come out of this three, four, five years from now needing and using less space than they needed before the pandemic,” said Leinberger.
“Many JSE-listed property companies today are undercapitalised. Many will need to raise capital in the years to come.”
All ordinary and special resolutions were passed by shareholders during voting at Coronation’s virtual annual meeting on Wednesday. It included the appointment of KPMG as the company’s auditor and a proposal to grant permission to Coronation to repurchase as much as 20% of its issued share capital.
Coronation’s share price fell 2.2% to R50.14.
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