Active management delivers in emerging markets and Africa
15 October 2009 - Coronation Insights
Following the events of 2008, emerging markets sustained their excellent performance in the past quarter, with most African markets following suit. Through smart stock selection and asset allocation the Coronation Emerging Markets and Africa funds trumped their benchmarks to deliver superior returns for the year to end September 2009.
The Coronation Global Emerging Markets Fund has returned an annualised 4,7% since inception in July 2008, outperforming the MSCI Emerging Markets Index by 12.1%. Similarly, the award-winning Coronation Africa Fund* (also launched in July last year) has delivered 12.5% since inception, against the -20% of its comparable benchmark, the Dow Jones Africa Titans Index. Both funds are managed out of Cape Town and form part of the broader range of global funds offered by Coronation.
Coronation Global Emerging Markets
The strength of the Coronation Global Emerging Markets Fund’s performance has been driven by a number of factors. For example, our exposure to the most popular countries in emerging markets (BRIC countries – Brazil, Russia, India and China) was low going into the market collapse of September/October 2008 asset prices were inflated in our opinion,” explains portfolio manager Gavin Joubert. “The significant declines in late 2008 provided us with the perfect buying opportunity to increase the fund’s exposure to China and Russia in particular; and we have benefited from the subsequent large upward moves in these markets.
As markets rally we are however disciplined about selling stocks with little upside, reducing exposure in many holdings. For example, exposure to commodities has shifted away from metals and materials, which we believe are expensive, toward oil and gas. Accordingly, we have increased our holdings in Gazprom, Petrobras and the Italian-listed energy giant ENI who has the bulk of its reserves in Africa and Central- Asia.”
Joubert believes the logic for investing in emerging markets is two-fold. “Firstly, the long-term prospects for these markets over the next 5 to 10 years are very attractive and secondly, the closet index tracking approach of many global emerging market managers provides a great opportunity to extend Coronation’s proven bottom-up, stock picking abilities to the world’s growing economies.”
Being true to a valuation-centred investment philosophy is what grounds our approach, and this is no different when investing in Africa,comments portfolio manager Peter Leger. “By consistently anchoring off a fair-value approach, we have avoided investing in overvalued equities and protected the fund from significant downside.”
“Nigerian banks comprise a significant portion of the investable universe in Africa and we have been underweight this sector since inception of the Africa fund. In recent months Nigeria’s banking sector fell out of bed, vindicating our stance.” Ten of Nigeria’s 24 banks have now been placed under the management of the Central Bank of Nigeria after failing an audit of liquidity, corporate governance and capital adequacy.
Leger believes there is still a long way to go in reorganising and restructuring the sector, but feels that some of the most important steps have now been taken. “The potential profit pool in Nigeria is large and it will now be divided amongst a smaller number of stronger banks. We have therefore been increasing our investment into the high quality banking names that we have held through the crisis.”
This situation has also played itself out in Egypt, where valuations hit extremes and then corrected sharply. During the course of the second quarter of 2009, the Coronation Africa Fund went from a very underweight position to overweight, following the correction – reinforcing the fund’s returns, says Leger. “We are invested in a number of consumer-facing businesses which trade on attractive valuations and offer multi-year earnings growth as a result of our bottom-up analysis. Looking five years out (and more), few geographies offer the compelling consumer opportunity that Africa does, and this has been reflected in our valuations and portfolio positioning.”
Fact sheets available on request
*Coronation was recently announced as runner-up in the category Best African Fund Manager at the Africa investor Index Series Awards ceremony held in New York. The awards are based on performance for the period April 2008 to April 2009
Notes to the editor:
About Coronation Fund Managers and Coronation International Founded in 1993, Coronation Fund Managers is one of the most successful asset management companies in South Africa. Listed on the Johannesburg Stock Exchange, the company manages in excess of US$20 billion on behalf of institutional and individual investors. It is widely recognised as an industry leader and product innovator, having won a number of industry and individual fund awards for superior investment performance. Coronation International Ltd. is based in London and is authorised and regulated by the Financial Services Authority.
The document has been prepared by Coronation Asset Management (Pty) Limited, an authorised Financial Services Provider in South Africa and approved by Coronation International Limited (“CIL”) for the purposes of section 21 of the Financial Services and Markets Act 2000. CIL is authorised and regulated by the Financial Services Authority (“the FSA”). To the extent that this document is issued in the United Kingdom, it is being issued to persons who are professional clients or are exempt investors in accordance with the FSMA 2000 (Promotion of Collective Investment Schemes) Exemptions Order) 2005. This document does not purport to be all inclusive or to contain all the information which prospective investors may require. The approval by CIL is limited to the information contained in this document.
This document is not an advertisement and it is not intended for public use or distribution. This document does not constitute advice on the merits of buying and selling an investment nor does it form part of any offer to issue or sell, nor any solicitation of any offer to subscribe for or purchase, shares in any fund managed by Coronation, nor shall it or the fact of its distribution form the basis of, or be relied upon in connection with, any contract for shares in any fund. It is recommended that an investor first obtain the appropriate legal, tax, investment or other professional advice and formulate an appropriate investment strategy that would suit their individual risk profile prior to acting upon such information. Past performance is not necessarily a guide to future performance.