Coronation SA Equity Fund

PERFORMANCE

The Fund returned 0.6% for the quarter (-1.7% YTD) as equities came under pressure. The Fund has performed well over meaningful periods of time.

FUND POSITIONING

Q2 brought the welcome news of a ceasefire agreement[1] in the Middle East. A swift retreat in the oil price should ease inflation. Markets recovered rapidly off their March lows, with the MSCI All Country World Index rising 15% (in US dollars) for the quarter (+11% YTD).

Artificial Intelligence (AI) beneficiaries performed strongly as demand for AI surged. The standout performers were pick-and-shovel companies (businesses supplying the chips, hardware, and infrastructure that underpin AI development), which stand to profit regardless of which applications or models ultimately prevail. The investment case is less clear-cut for the hyperscalers (companies scaling compute power and storage); the scale of capital expenditure by these businesses is dizzying, and whether AI deployment will ultimately generate returns commensurate with that investment remains an open question. Elsewhere, fears of AI-driven disruption have weighed on many high-quality businesses, with markets pricing in permanent moat (competitive advantage) impairment.

The MSCI Emerging Markets Index rose 24% in USD in Q2 (+24% YTD). This, after rising +34% in USD in 2025. The extraordinary AI-driven boom in Asian memory stocks has been a major contributor. As with gold shares, the meteoric rise in memory stocks has resulted in broad-based selling across the rest of emerging markets (EM) as benchmark-tracking funds follow indices up.

Having risen >80% over the year to end Feb, gold began retreating with the outbreak of the Middle Eastern conflict, ending the quarter below $4,000/oz (-14% for the quarter, -7% YTD). Despite its touted hedge properties, gold failed to provide protection during this crisis. It behaved like a risk asset, highly correlated to risk sentiment and equities. We believe this is evidence of the speculative nature of the gold buying we have seen since the second half of 2025. Price-insensitive, momentum-driven retail buying caused the gold price to become dislocated from its underlying fundamentals. This, combined with high benchmark weightings, heightened the risk of losses for investors. We believe it is essential to protect clients against the risk of material capital loss. As a result, the Fund has held a sizeable underweight in gold shares over the past year. While this position detracted meaningfully from relative performance over the past year, it contributed over the most recent quarter.

Gold’s outsized weight in the benchmark (it peaked at 20% in the FTSE/JSE Capped All Share Index [CAPI] in February this year) crowded out the broader market, as many investors rotated out of other holdings to fund gold exposure. This has created compelling value elsewhere. Our gold underweight has allowed us to build meaningful positions across a basket of stocks we believe are well placed to deliver strong returns in the years ahead.

South Africa’s (SA) reform trajectory remains one of slow but steady progress. The GNU is delivering demonstrable gains in key areas, which we believe increases the probability of its survival. At the local level, poor municipal service delivery continues to undermine business confidence. Local government elections later this year offer an opportunity to resolve this – stable, functional coalitions in the large metros would be a meaningful positive. The ANC succession race remains the single most important variable for SA’s longer-term trajectory.

SA’s debt-to-GDP stabilised through 2025, supported by ongoing fiscal discipline and elevated precious metal prices. This progress is gaining external recognition: S&P Global upgraded SA’s long-term sovereign rating in November 2025, and Fitch followed in June. Subdued economic growth remains a challenge, though the recent retreat in oil prices should provide some relief to the struggling consumer.

The CAPI was down -2% for the quarter (and now -3% YTD). High benchmark exposure to precious metals has materially impacted index performance, with the FTSE/JSE Precious Metals and Mining Index declining -23% (and -21% YTD). The portfolio continues to make use of the breadth of opportunity available in the local market by owning a more diverse basket of shares. We see compelling value across JSE-listed global stocks and winning domestic shares with a smaller allocation to resources.

The resources index (FTSE/JSE SA Resources Index) declined -19% during the quarter, dragged down by a collapse in precious metals pricing and a retreating energy sector (-16% for the quarter). The Fund has held an underweight position in the resources sector for some time, with a meaningful underweight in gold shares. We reduced our PGM holdings during the quarter (underweight position from April). The outlook for PGM demand has deteriorated. Demand for Battery Electric Vehicles (zero PGM required) has again accelerated, driven by low-priced BEV supply. Hybrid electric vehicles (PGM neutral vs combustion engines) are proving to be an expensive and less popular alternative. The spike in the oil price may also pull BEV adoption forward. Key stock picks within the resource sector include Glencore and South32.

The large underweight in gold shares has enabled the Fund to hold an attractive basket of winning domestic businesses as well as several JSE-listed global stocks. These offer compelling upside and mid-teen IRRs (internal rates of return).

Within the portfolio, we remain focused on owning businesses with the resilience and competitive edge to thrive despite anaemic economic growth. These winning businesses compound their advantages over time – reinvesting consistently in their franchises, delivering superior value to customers, and taking share from weaker competitors. Combined with good capital allocation, this drives long-term returns. Our basket here remains unchanged with Advtech, PSG Konsult, Capitec, Dis-Chem, Shoprite, and WeBuyCars. There are a few other contenders in the portfolio which we hope to elevate to winning status in time.

The Fund holds sizeable positions in several SA banks, where high dividend yields and a decent growth outlook support the case for double-digit returns. While the banks face competition from more agile challengers, their large, engaged customer bases remain a formidable advantage. We expect them to leverage their distribution strength to deepen product penetration and grow revenues in real terms. A sustained domestic recovery would provide further tailwinds through increased credit extension and transactional activity. SA’s banks are also well-positioned to grow into the broader African opportunity. Standard Bank stands out in particular, with a leading CIB franchise that gives it exceptional continental reach – it is one of the Fund’s largest holdings. The financials index (FTSE/JSE Financials Index) returned 8% for the quarter.

The industrials index (FTSE/JSE Africa All Share Industrials Index) returned 5% for the quarter (-4% YTD), dragged lower by its largest constituent Naspers/Prosus, which fell -6% in the quarter (27% YTD). The weakness reflected concerns, including the near-term earnings impact of Tencent’s stepped-up AI investment, and ongoing capital allocation questions at the Naspers level. We are constructive on both. Tencent’s AI spend, while dilutive to near-term earnings, is being deployed across a massive ecosystem, spanning 1.4bn monthly active users and integration across the Chinese economy in sectors including gaming, advertising, and fintech. We believe Tencent is well-placed to be a meaningful winner as AI reshapes these industries. At the Naspers/Prosus level, there are encouraging signs of improved execution across several assets. A firm commitment to buybacks provides an additional source of value. We believe the stock is deeply undervalued and have built a sizeable position.

The property index (FTSE/JSE All Property Index) returned 10% for the quarter (now 5% YTD). The Fund continues to hold a select basket of property shares underpinned by high dividend yields and healthy balance sheets.

OUTLOOK

We are excited about the stock-picking opportunities in the local market. Given the attractive upside in our basket of equities, we expect the Fund to deliver double-digit returns over the medium term.

[1] Conditions remained fragile at the time of writing.

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