Coronation, one of SA’s largest asset managers with more than R760bn in assets under management, has stuck to its strategy of picking stocks in local companies that can report positive results and pay good dividends in a low-growth economy.
In its Balanced Plus Fund third-quarter review the money manager said the companies that fit this bill include WeBuyCars, PSG Konsult, AdvTech, Shoprite and Capitec.
“We have previously discussed the focus within the domestic stock universe on picking winning franchises that can thrive despite a tough economy. We remain committed to this strategy as the low-growth economy drives a widening gap between local winners and losers,” Karl Leinberger, chief investment officer, and Sarah-Jane Alexander, a portfolio manager, said in the review.
“Our list of winners remains unchanged and includes businesses such as WeBuyCars, PSG Konsult, AdvTech, Shoprite and Capitec. All came through the results season demonstrating volume share gains in a tough economy,” they said.
“Growing scale is reducing the cost of customer acquisition and the cost to serve. High levels of reinvestment should enable these businesses to compound earnings ahead of the market in the years ahead.”
The fund has opted to be underweight in the resources sector, particularly gold stocks, despite the record-breaking rally of the gold price over the past two years, with Coronation’s base case being a long-term decline in the gold price.
Growing scale is reducing the cost of customer acquisition and the cost to serve. High levels of reinvestment should enable these businesses to compound earnings ahead of the market in the years ahead.
On the local front, the asset manager flagged poor consumer demand despite low inflation and some interest rate cuts.
Leinberger and Alexander also weighed in on the gambling scourge that has gripped SA.
“An exception to generally weak consumer demand has been the explosion in online gambling, facilitated by increased ease of access. This unproductive spending is concerning, given that little lasting benefit flows to either the consumer or the local economy.”
Cape Town-based Coronation’s reviewed financial results for the year to end-September 30 are scheduled to be released next week.
The group’s Balanced Plus Fund has been around since 1996 and has more than R116bn in assets.
The fund continues to have a meaningful allocation offshore with these offshore holdings supplemented by domestic assets, predominantly SA equities, which is the fund’s favoured domestic asset class.
Lienberger and Alexander, the fund’s portfolio managers, said within SA equities, the fund had sizeable exposure to the global stocks listed locally.
“These holdings are both independently attractive and provide diversification away from a challenged domestic economy. The largest among these include Naspers, Quilter and Richemont. In Naspers, we have high conviction in the prospects of its core Tencent investment,” they said.
“Tencent’s gaming and advertising businesses are growing strongly, while fintech is picking up. This topline growth is driving widening margins. At a Naspers/Prosus level, investors benefit from an additional pickup from the accretive share buyback programme.”
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