Asset management group Allan Gray has 10% of its balanced fund tilted towards “self-help” SA companies such as Standard Bank and Remgro, saying such entities are able to withstand economic headwinds.
The asset allocator also has one-third of the portfolio invested directly offshore, with most of this exposure managed by Orbis.
Jithen Pillay, portfolio manager at Allan Gray, and Matthew Patterson, a business analyst, in a note said that this year was a period in which to minimise risk and preserve capital. The company had positioned its portfolios defensively for a wide range of potential outcomes.
“One-quarter of the portfolio is invested in local businesses with minimal exposure to the SA economy, such as packaging and paper group Mondi, British American Tobacco, and brewer AB InBev. We favour precious metals and select precious metal miners, as we believe they behave differently from the rest of the market in times of crisis,” they said.
“We also favour SA ‘self-help’ companies, which we believe have internal levers to pull to improve their economics, even if the local economy is weaker than we would have hoped. Examples here include Woolworths, Standard Bank, Remgro and Tiger Brands.”
Standard Bank, Africa’s largest lender by assets, has reported record profits over the past two years, giving back billions of rand to shareholders via dividends.
The “Big Blue”, as the lender is referred to due to the size of its balance sheet, in March reported a 27% increase in headline earnings to R43bn in the year to end-December.
The banking major paid out R27bn in dividends to shareholders in the period, taking its dividend tally to nearly R50bn in the past two financial years.
Tiger Brands last week reported an 11% increase in headline earnings from total operations in the six months to end-March.
The company has reported an 11% increase in headline earnings from total operations at the halfway stage, despite the tough trading environment characterised by negative volume growth across retail and wholesale channels.
Tiger Brands is undergoing a turnaround process under new leadership after appointing Tjaart Kruger as CEO in November. Kruger did not waste time in overhauling the group’s management team.
Thushen Govender was appointed as CFO in January, followed by the appointment of MDs from within the organisation for each of the six business units in February.
The results of the ongoing [political] negotiations could significantly reshape many policies, affecting companies in a variety of ways
Allan Gray said the markets had been dealt an “uncomfortable period of uncertainty” after the outcome of last week’s national elections.
“The decline in support for the ruling ANC has ushered in an era of coalition politics at a national level. While this shift towards coalition politics can be seen as a sign of our democracy’s maturation, it also brings with it an element of unpredictability. The results of the ongoing negotiations could significantly reshape many policies, affecting companies in a variety of ways,” it said.
“The next hand is the possibility of higher inflation and interest rates, especially in developed markets. Even though we are based at the tip of Africa and make investment decisions based on company fundamentals, macroeconomic factors in developed markets affect our investment environment.”
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