Coronation Top 20 Fund

PERFORMANCE AND FUND POSITIONING

2025 was a significant year for the South African equity market,  delivering stellar returns of 43% in rands, which was then compounded by rand strength to produce a phenomenal US dollar return of 62%. Considering that the SA market was down in the order of 10% at the beginning of April following the introduction of the US tariff bill makes this turnaround in performance even more remarkable.

The Fund delivered its best absolute performance in more than a decade. With a return of 28% being a fantastic absolute return number, it was unfortunately well behind the benchmark, given that the key driver of the South African market returns for this period was precious metals. The Fund was underweight gold and has moved underweight platinum group metals (PGMs) too through 2025. Gold and PGMs have now become a very significant part of the benchmark (±26%) and given the extreme performance of the underlying commodities, the shares have performed exceptionally well.

Forecasting commodity prices is tricky for industrial commodities, and even more difficult for speculative commodities which have little industrial use (i.e., gold).  After many decades of investing in commodity-driven markets, we are however very certain of the cyclicality of all commodity industries and are very wary of investing heavily at the top of the cycle. Calling when exactly the cycle will peak is an inexact science, but given the extreme price rises we have seen in commodity prices we are undoubtedly in the top part of the cycle. Further evidence of a toppish cycle is a rise in corporate M&A and at the time of writing we have the announcement of a potential mega merger of Rio Tinto and Glencore, hot on the heels of the Anglo-Teck merger. 

To invest over a quarter of the portfolio today into speculative commodity-driven companies we deem to be a significant risk. We are particularly concerned by the fact that gold mining companies have typically returned very little of the super profit years to shareholders, instead using the windfall to develop further mine expansions or buy up other assets and companies. Despite all the excess profits that the major precious metal companies have been generating and the optically low multiples that they are trading on we have seen no share buybacks, which speaks volumes as to what the management of these companies think of the current market valuations.

We do hold a significant stake in Glencore, whose share price had underperformed the sector in 2025. Glencore presented a very compelling capital markets day at the beginning of December, showcasing the growth potential of its copper assets, one of the industrial commodities where we know there is significant demand in the years ahead. We think its asset base is attractive and undervalued, something which the market is now appreciating with the announced Rio merger talks.

During 2025 we also took advantage of the weak domestic macroeconomic conditions to buy up lowly-rated South African-focused companies. We increased our exposure to Shoprite, Spar, Pepkor, and Woolworths through this period. While trading remains tough and low inflation has seen anaemic topline growth, we believe the very low levels of inflation driven by the declining oil price and strong rand will result in further interest rate cuts in 2026 which should be supportive for domestic demand. We have maintained our exposure to the SA banks with particular high exposure to Standard Bank given its strong African growth profile.

We have also added to our position in Sanlam given its relatively attractive valuation and exposure to growth markets in Africa and India. The Africa theme is getting strong support from the high commodity prices. While lower oil means weakness for some markets, improved reforms in key markets like Nigeria, and strong metal prices for an economy like Ghana, have seen significantly higher growth coming through in these regions. In addition, Sanlam has undertaken a number of restructuring and investment initiatives in its Indian operations to focus on its life and insurance operations in a fast-growing and underpenetrated market.

In the last quarter we also added Bidcorp, the global (ex US) food services business. The company has de-rated significantly over the last few years, despite still growing its profits in hard currency. While the stronger rand will be a short-term headwind for rand-denominated profit growth we think the business model remains robust with plenty of growth in its widespread markets for many years to come.

OUTLOOK

Given the increasing levels of uncertainty in the world as we head into 2026, we have strived to improve the robustness and quality of the portfolio and believe that the Fund is today in a very robust position to not just grow but also defend the gains made in the last few years. 

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