SIM Global Financial Feeder comment - Sep 11 - Fund Manager Comment21 Nov 2011
Market Review
Suffice to say that events in the financial markets during the quarter and month ending September were ruled by fearful investors fleeing to "safety" - forgetting that the US dollar is only safe as long as the herd thinks it is. This had significant negative impact on illiquid shares and most currencies, but especially the emerging market currencies. Even the extremely safe Norwegian krone depreciated 9% relative to the greenback.
Believing that the European governments will not be able to get ahead of the market and stave off a Greek default, we continued reducing illiquid shares and companies most likely to be directly affected by the coming recessions in the US and Europe.
We accelerated our selling into the strong rally at the end of September and thus were left with a much larger than usual cash balance (+10%) at quarter end.
Until it is clear exactly who will bear the Greek loss, markets will continue seeking safety. Hence we are investing the cash in shares with high dividend yields and those most likely to come through the turmoil unscathed.
The majority of the larger investments of the fund held up better than the market and some were indeed positive, including Chiba Bank, Resona, Nishi-Nippon, China Construction Bank (sold at the end of September), Indiabulls Financial Services, Redecard, Renaissance Re, US Bancorp, SvenskaHandelsbanken and Scor.
Unfortunately this was undone by the substantial depreciation in most currencies but particularly some of the emerging market currencies. Disappointing shares were Amlin, Adira Dinamika, Bank of America (sold during the month), JPMorgan and Woori Financial Holdings.
However, we believe that the price falls are overdone and that we will witness a repeat of the market rally in the first half of 2009 during the first half of next year. The current top 10 holdings are undervalued. There is a possibility of a further 15% market correction and hence we are monitoring developments in Europe to be able to take advantage of even better value that could emerge.
SIM Global Financial Feeder comment - Jun 11 - Fund Manager Comment23 Aug 2011
While May and June were terrible months, they didn't totally undo an excellent April, allowing the fund to deliver a positive return for the quarter.
Our feeling is that markets almost everywhere overreacted to the negative stimuli (of which there were plenty) and that banks specifically are again very attractively priced, especially if we experience positive surprises.
These could be:
- An end to the inflationary pressures in India and China, allowing the central banks there to end the period of tight (ening) monetary policy,
- Positive growth surprise in Japan (a high probability outcome in our opinion), Positive news flow in US (also a possibility, simply because the past two months have been so bad) and the
- ECB managing to kick the Greek (and PIIGS) can a bit further down the road. Of the above, we are the least optimistic about Greece, as "kicking the can down the road" doesn't solve the main problem, i.e. that Greece is insolvent and needs creditors to take a haircut.
Against this backdrop, we gradually increased our exposure to US< Japanese and Indian banks and did some switching in Korea.
Korea was the worst performing market (mainly as a result of government-inflicted wounds, as usual), with Hana Bank collapsing 21% during the quarter and dragging the rest of the banks with it. This means Korean banks are trading at almost the same valuations as European banks - but in an economy that is growing its GDP at 5% a year.
The US banks were also hard hit, with Bank of America down 18% for the quarter and JP Morgan slumping11%, and so were many of the Indian banks on continued fears of further monetary tightening and slower growth). However, the fund managed to outperform both during the month and for the quarter due to the very strong price movements in BFI (+65%) and Adira (+20%), while our Japanese banks and a few other (e.g. Scor, Indiabulls) were positive for the month and some of them also for the quarter.
In this regard, it is pleasing that our stance of remaining invested in undervalued emerging market growth financial services companies rather than very cheap but high risk developed market banks paid off.
Last month we commented that the price falls in India, Korea and Japan were overdone and, once markets settle down (August/September?), we should see a strong rerating in these markets, as well as the individual companies we are invested in recording good earnings growth. We maintain that view.
SIM Global Financial Feeder comment - Mar 11 - Fund Manager Comment17 May 2011
Market Review
The fund experienced significant volatility during the quarter, underperforming in January and February but rebounding strongly in March.
In January and February, we were surprised by the strength in both US and developed market banks. True, they seem undervalued but that belied the risk, especially if oil prices spiked higher. In this case the slower economic growth could put severe strain on the fiscal position of the UK and US as well as many European countries.
The strong performance of the MSCI Financials Index was due to large gains in the European and US banking sectors, which were driven by the markets view that the time-bombs have been kicked down the road and that the markets had already calculated the risks in the prices.
While emerging markets are generally fiscally sound, their performance was driven by the risk of central banks having to raise interest rates to combat inflation induced by higher food prices.
In February, the sell off in the emerging market banks came to an end. We had an almost equal number of gainers and decliners. India Bulls and Adira were amongst our largest holdings, hence their 7% price falls hurt, but they became very undervalued again and we have a high degree of certainty that the sell down had nothing to do with fundamentals but was purely liquidity driven. Reading the headlines would make you think March was a horrible month: a terrible Japanese earthquake and tsunami with a scale 5 nuclear accident; increasing Middle East uncertainty, with western powers and Arab league countries enforcing a no-fly zone in Libya; the resignation of the Portuguese prime minister after opposition parties failed to approve his austerity plan, which he was using to convince foreign investors to invest in Portuguese government bonds; negative US housing starts and US house sales falling by more than 20%, etc, etc. Yet, although markets DID react to the bad news, with the Japanese Topix down more than 20% at one stage, the fund did well, delivering a return of 4% for the month The reasons for this strong performance: firstly, (except for Deutsche Bank) we stayed out of Europe/UK and sold almost all our US banks at the end of February; secondly, we invested the cash to increase our holdings in catastrophe re-insurers and Japanese banks after the tsunami and thirdly, investors flocked back to emerging markets and thus our Indian, Turkish and Indonesian stocks performed well.
Individual shares that performed well during the month:
World Acceptance Corp (a microfinance lender in the USA), Tisco (vehicle finance and asset manager in Thailand), United Bank and Dena Bank in India, Daegu Bank in Korea, WR Berkley (US P&C insurer), African Development Corporation, Redecard (Brazil) and Albaraka Bank in Turkey. While most investors focus on big market cap names like Barclays ("persecuted" by politicians and regulators) and BBVA or National Bank of Greece (affected by the European slowdown) the list above shows where our focus is: smaller, unknown, undervalued high growth finance companies off the radar of most investors.
Mandate Limits28 Mar 2011
The Sanlam Global Financial Fund will have foreign exposure of at least 85% (Supplemental Trust Deed / ASISA Guidelines)