2019 was a mixed year for the Fund as we continued to build the portfolio. Returns have only been marginally positive which is disappointing, but we have been actively deploying cash into what we think are very attractive opportunities for patient investors. A year ago the fund had nearly 30% in local cash and this has declined to 18% as we have gradually deployed more cash into the domestic market. Much of this has been invested in domestic small and mid-cap companies where valuations have become extremely compelling. While most investors do not have the flexibility to take advantage of this, we have used our size advantage to build positions in what we deem to be solid companies, run by very capable management teams, at extremely attractive prices.

We are also finding opportunity in cyclical areas that have been in multi-year declines, but where we think supply and demand imbalances will become a tailwind in the years ahead. Two examples are uranium and shipping where we have exposure to Cameco and Grindrod Shipping. Given the poor returns in the industry, constrained supply should support higher prices in the future. Both companies have quality assets and sound management that have managed the downturn reasonably well and should produce solid cash flows when the cycle improves.

Old Mutual has been in the news for all the wrong reasons this year. While we do not think Old Mutual is an outstanding business, we do think it is an above average business that is difficult to replicate and will survive and prosper beyond the current boardroom issues. While we are concerned about the management issues, we remain of the view that Old Mutual will be a better run and more focused business in the future and that the current share price provides a compelling entry point.

Hosken Consolidated Investments or HCI is now our largest position which reflects our conviction in the investment thesis. HCI is an empowered investment company under John Copelyn’s stewardship that has a long history of sound capital allocation and strong shareholder returns. The very large discount to NAV provides a strong underpin, but we think there is also significant hidden optionality within the HCI portfolio that may be realised in the next few years, most notably their stakes in Impact Oil and Gas and Platinum Group Metals. HCI owns 30% of Platinum Group Metals which is a part owner of a significant, palladium rich reserve in the Waterberg. Impala Platinum is a partner in the project which has enormous potential value given the very strong palladium market. With the HCI share price as depressed as it is we gain exposure to assets like these for free, providing a very favourable and asymmetrical investment set up.

As we continue to build positions and increase the equity weighting it means returns may be more volatile and lumpy in the short-term. Given that our holdings trade at such large discounts to their intrinsic value I am increasingly excited about the long-term prospects for the Fund.