Five different Nedgroup Investmentsâ€™ fund managers, five differing investment views
Divergent views about the investment climate and outlook for different sectors of the markets and shares abounded at a recent Nedgroup Investmentsâ€™ fund manager workshop, where five managers of Nedbankâ€™s unit trust funds explained their market views and current portfolio positions.
The five were: Eldria Wagenaar of Prescient Investment Management (Nedbank Positive Return Fund and Nedbank Flexible Income Fund), Walter Aylett of Aylett & Co (Nedbank Bravata Worldwide Flexible Fund), Piet Viljoen of RE:CM (Nedbank Managed Fund), Dave Foord of Foord Asset Management (Nedbank Value Fund), and Tim Allsop of Polaris Capital (Nedbank Rainmaker Fund).
â€œWhat is clear when listening to these experienced money managers is that, while they all have exceptional long term track records of generating real returns for investors, they do have differing views on the market and individual shares,â€ says Nic Andrew, head of Nedgroup Investments. â€œThe differences are largely explained by their differing investment philosophies and management styles, investment time horizons and the differences in the investment mandates of the funds which they manage for Nedgroup Investments. However, most important to investors is that an analysis of the performance generated by each of these managers illustrates their ongoing ability to identify opportunities to deliver outperformance.â€
Tim Allsop believes that the current â€˜super cycleâ€™ for resources stocks would continue for at least another year: â€œI think that the Chinese market and its demand for commodities will last for quite a while.â€ Consequently he plans to stick with relatively large stakes in resources stocks, BHP Billiton and Anglo American. â€œThey still offer value even though there has been a drop in commodity prices.â€ He is also taking comfort in the view that the rand will further weaken and add to the rand prices of commodities. Allsop is concerned about the retail market and banks because of inflationary pressures, consumer debt and higher interest rates.
On the other hand, Piet Viljoen says there is a lot of speculative buying happening in commodities, which indicates that the current cycle of sustained growth in resources may be approaching a peak. But he did agree with Allsopâ€™s views on the rand, saying that on a purchasing price parity basis the rand, at its current level, is slightly overvalued and a fair price for the currency is probably around R7.50 against the US dollar.
Viljoen believes the local property market has become fairly expensive and he is concerned that the market is discounting higher earnings and distributions of property unit trusts (PUTs) than they have been able to achieve historically. He described the listed property sector as a â€œserial non-performerâ€ and argues that: â€œPeople get emotionally attached to property because it is something that they can see.â€ The maintenance of property is a major factor in the cost equation, which investors consistently underestimate.
Both Viljoen and Eldria Wagenaar do not see much value in bonds, with Wagenaar adding that this is due to inflation showing a rising trend.
Dave Foord, who has been managing the Nedbank Value Fund for the past two years, says investors in local equities can look forward to a long-term buoyant market. He is upbeat about the long-term prospects of the local economy. Foord says the Nedbank Value Fund has a concentrated portfolio of between 20 and 25 shares. â€œWe focus on companies that have a high cash flow, quality management, provide a high-dividend yield and a low price-to-earnings ratio. The foundation of our valuation of shares rests on earnings, earnings and more earnings.â€
Unlike Viljoen, Foord believes that that there is still a long-term bull phase ahead for commodities. He says due to prolonged worldwide shortages of minerals and metals, the demand will increase, especially for metals like platinum, which will outperform gold as they have more uses than the yellow metal. Foord is more upbeat about the prospects of the banking sector than Allsop. He thinks that the valuations of the four major banks are â€œfantasticâ€ and that they are cheap in relative terms.
Walter Aylett who manages the Nedbank Bravata Worldwide Flexible Fund, a fund that has complete flexibility to invest in any asset class locally or internationally, says local shares are still fairly valued and foreign equities could provide better opportunities. The fund has a fair amount of exposure to shares of Berkshire Hathaway, US investment guru Warren Buffetâ€™s company and is about 65% invested offshore.
â€œWhile it is clear that, although these managers have differing views, they are similar in a number of important ways. In particular, they are all passionate about managing money; their interests are aligned with investors, as they own or are shareholders in the respective asset management businesses and are also often invested alongside their clients; they all display high levels of conviction; and they all apply a sensible and well thought through investment process and philosophy, consistently over time and through various market cyclesâ€, concludes Andrew.
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