Mandate Overview24 Feb 2020
The Aylett Equity Prescient Fund is a general equity portfolio. The Manager in selecting securities for the portfolio will seek to follow an investment policy which will secure for investors an optimum overall return, that is to say the steady growth of income and the preservation of capital in real terms.
Aylett Equity comment - Dec 19 - Fund Manager Comment24 Feb 2020
2019 was a quiet year for the Aylett Funds, with the Aylett Equity Prescient Fund underperforming its benchmark over the year by approximately 4%. We’re not surprised by this after the outperformance in 2018.
We did make a few stock-specific mistakes which took the shine off an otherwise acceptable year. We refer you to previous factsheets for a more detailed discussion of what we got wrong.
There were however some success stories; our large position in Reinet performed well during the last quarter by adding just over 2% to the fund’s performance as the market began to appreciate the rational capital allocation by Reinet management and to recognize the value of the underlying portfolio. Considerable research time has been applied to the Reinet investment, and it is pleasing to see the results.
We continue to allocate capital to South African exposed mid and small cap stocks. The market seems focused on the short-term prospects of these businesses, which reflect the weak and uncertain economy in South Africa, but we believe these assets are not easy to replicate, and their competitive positions are strong. Short-term results and share prices may be declining, but the long-term value remains intact.
Buying as share prices fall allows us to build positions at increasingly lower prices, but in the short-term, this hurts performance. While painful, this has been the pattern for many of our more successful past investments and is typical of our approach. It is not a contrarian strategy, but an investment philosophy based on being rational allocators of capital.
There is a lot of latent value in the fund and we are particularly excited about the prospects of our large positions, namely Reinet, Royal Bafokeng Platinum and Transaction Capital. As discussed above, the mid and small-cap stocks being added to the fund are good businesses being bought cheap.
We look forward to reporting back to clients over the next few years on the prospects of the portfolio.