Tough stock market conditions present great buying opportunities for asset managers who are prepared to take advantage of overly negative reactions to share prices, Camissa Asset Management’s chief investment officer Gavin Wood said yesterday.
Speaking during an Allan Gray Fund Provider online event, he said that these opportunities could be found by recognising that the value of a company was in the cash flows it could generate for years into the future, and the fact that the current difficult conditions were likely to pass. Some companies also navigated tough times more skilfully than other companies, he said.
He said one of their local stock holdings was Sanlam, which he said had outperformed its peers in terms of new business value.
He said Sanlam’s short-term insurance subsidiary Santam had an “irreplaceable corporate and consumer market share”. Sanlam generated high levels of cash and had differentiated itself from the other insurers through its focus on markets offering higher returns on capital and stepping away from business that might offer market share gains, but at low margins.
Another local company Camissa held was Datatec, the enterprise service provider group focusing currently on work-from-home, cloud and cyber security technologies.
Wood said they held Datatec shares because the firm also had a strong presence in South America, had a global distribution network, margins were expanding and its management was substantially aligned to the performance of the company.
Another company that Camissa favoured was Famous Brands, which Wood said had successfully fended off competition from major Western country competitors. It had vertically integrated operations with manufacturing and logistics in addition to its dominant restaurant brands and its brand categories were diversified.
He said Famous Brands also generated high levels of capital and its return on equity was high, with the businesses bouncing back from Covid-related headwinds.
He said South African government bonds were also offering good real returns at present. Inflation was expected to decline this year, and there was “too much pessimism on the bond market about the South African government’s potential to default on its debt”, he said.
“We feel that if you can offer investors a 7% real yield in today’s markets, most of them will take it,” said Wood.
Of three other investment funds that presented at the Allan Gray event, the M&G Inflation Plus Fund, Allan Gray Stable Fund and Coronation’s Balanced Defensive Fund, all of their top 10 local equity investments included Standard Bank, Glencore and British American Tobacco.
Coronation Fund Managers portfolio manager Pallavi Ambekar said an equity not held by the other two funds included Anglo American, which was in Coronation’s Balanced Defensive Fund because of, among other reasons, the diversity of the minerals it mines, including gold, copper and iron ore, and because of the balance its management struck between investing in production growth and shareholder returns.
Wood said there were also “substantial” opportunities in global stocks, such as “highly undervalued” industrial shares including leading ball-bearing manufacturers, some consumer-related stocks that were undervalued but which had good prospects in the years ahead, such as Netflix and Disney, automated software market leaders such as Siemens, and specialist chemical firms such as DuPont and Bayer.
BUSINESS REPORT