The FTSE/JSE All Share Index (ALSI) was down 4.6% for the quarter, while the NSX Local Index gained 3.7%. The South African market has continued to be narrow, with a few big names outperforming, along with precious metal shares. The Fund has not owned, or been underweight, a number of these shares, which has contributed to our recent underperformance.

Despite a flattish market overall, a glance at a table of share price movements highlights that many South African shares have been depressed for some time. Their performance reflects the mood of the country, given the economic and political environment. This sombre mood has been exacerbated by some quite public strategic and governance mishaps at various companies.

Fortunately, history shows that there is not a strong correlation between economic growth and equity returns. What is more relevant for future returns is the price one pays for an asset today. We are reminded of a quote by investment writer, Jim Grant, who said: “For the investor as opposed to the statesman, macroeconomic growth places a distant third to price and value on the scale of financial virtues.” We aim to take advantage of this disparity in price movements.

That sounds logical, but it is understandably hard for clients to live through a grinding sideways market with no end in sight, and where income funds are outperforming balanced and equity funds. This experience differs from the shorter, sharp declines of 2008 and 2016, from which the market recovered relatively quickly to its previous highs.

We don’t believe that many of the assets the Fund owns are pricing in a significantly better future. Locally, real interest rates are already high, and many formerly safe shares have halved in price, if not more. In simple terms, we are closer to low than high.

These low expectations are slowly starting to reveal themselves. When Woolworths and British American Tobacco reported results in line with expectations, their share prices rallied strongly on the day. The well-known risks for each company had not changed, but the valuations had just got too low.

The investment team is writing more reports on companies due to share price declines than it has for some time. This is positive, as not only does it mean valuations are more attractive, but there is also a greater number of ideas competing for each Namibian dollar of capital to be deployed.

Our colleagues at our offshore partner, Orbis, also believe they are finding good relative value when comparing their shares to those they don’t own.

The standout event of the quarter was the listing of international internet company, Prosus, which owns roughly 24% of Naspers’ internet and e-commerce assets, on the Euronext in Amsterdam (commentary on the listing is available via the News & Insights section on our website). Naspers is the biggest company in our market, yet continues to trade at a large discount to its underlying holdings. Time will tell whether the listing will help reduce this discount – and it may well just be the first step on a journey to do so.

During the quarter, the Fund bought Glencore and FirstRand Namibia and sold Prosus to buy Naspers.

Commentary contributed by Duncan Artus and Birte Schneider