Nedgroup Investments Entrepreneur comment - Jun 13 - Fund Manager Comment17 Sep 2013
Abax Investments
After the very strong returns recorded by the market in May we were not surprised to see it pull back in June. In that context we are pleased to report that our natural defensiveness and cautious share selection has served the Nedgroup Investments Entrepreneur Fund well as we were able to limit the extent of the decline recorded by the Fund to 0.5% for June. This compares favourably with the decline recorded by the JSE All Share Index (-5.7%) and also the more relevant JSE Small and Mid-Cap Indices at -1.1% and -0.4% respectively.
Equity and debt markets experienced a very volatile period as they anticipated and then reacted to the increasing conviction being expressed by the US Federal Reserve of their intentions to reduce the degree of monetary support they have been providing since the Global Financial Crisis in 2008. This action has always been an inevitability and we will all now find out if the US economy can continue to struggle its way to economic recovery without artificial stimulus or not. The impact of this removal of stimulation will be felt not only in the US but around the world and while we do not know what the full effects will be, we can only stick to our tried and tested investment approach.
Our efforts continue to focus on the search for and investment in reasonably priced, well run businesses that our research suggests will be able to grow their profits and dividends in these uncertain times. We draw great comfort from the confirmation that all of the shares in our top 10 holdings tick this box.
Nedgroup Investments Entrepreneur comment - Dec 12 - Fund Manager Comment30 May 2013
The Nedgroup Investments Entrepreneur Fund ended the year just breaking through the +40% mark for the year. This is very pleasing in the context of the returns recorded by the JSE Mid and Small Cap Indices of +29.5% and +28.9% respectively and the Peer Group Average of +27.5%.
Once again we reiterate our caution to investors not to expect the high returns the Fund has delivered to continue indefinitely into the future.
We do, however, hope that our naturally conservative approach to the assessment of the businesses in our investment universe and ultimate stock picks will protect us from making too many mistakes. Already early into 2013 we are being tested as the early retail stock trading updates over the crucial Christmas period have been disappointing, causing an aggressive sell off in the space - no doubt fuelled by some panicked behaviour by foreign shareholders who have come to dominate the sector. This is hurting the Fund, but we remain confident of our limited stock picks' prospects in the sector - namely Mr Price, Woolworths and Foschini and will use the short-term weakness to add to them.
We also hope that our higher cash position than normal (±5%) and recent acquisitions of more defensive and out of favour stocks will cushion the impact.
Nedgroup Investments Entrepreneur comment - Mar 13 - Fund Manager Comment30 May 2013
March was a very rewarding month for investors with the Fund. The monthly return compared favourably with the returns of the JSE Mid and Small Cap Indices of +2.5% and +3.3% respectively.
Encouragingly, performance was driven by a variety of stocks across sectors and standouts included Capitec 13.9%, Oceana Fishing +13%, Mediclinic +12.8% and Woolworths +10.6%. Our long-term investors will not be surprised to learn that we used the short-term absolute and relative strength of most of these stocks to take a little profit and applied the proceeds to add to our small, but growing positions in the fixed investment space, which we referred to in the February 2013 commentary.
We did not sell any Capitec despite this company’s performance in March. It remains the largest position in the Fund and in the context of well publicised concern among investors about the possible existence of an unsecured credit lending bubble in South Africa, we comment on this position a little more this month. We concur that there are aspects of the changing credit pool in SA that are of concern, but following publication of their final results to the end of February 2013, and our subsequent further meetings with management, we remain confident about the long-term growth prospects for Capitec within the broader SA banking industry for the following reasons:
- Capitec aspires to become the low-cost provider of banking services to South Africans – regardless of monthly income. They continue to make impressive progress towards the achievement of this aim as evidenced by their rising primary client base, which is now 1.8 million - but still only 9% of the SA market.
- They employ the most conservative bad debt provisioning and write-off policies in the industry.
- Conservative management with a single-minded focus on their client’s needs.
- A very low dependence on transactional fee income, although this is growing quickly, but driven by client numbers not fee increases. They remain in reality and client perception, the cheapest bank in the country.
- A secure capital position and the ability to continue to grow.
- All of this on a PE multiple of 14 times versus the bigger banks on 12. Given the comparative growth prospects of Capitec, we prefer it.