Coronation Top 20 Fund

PERFORMANCE

The war in the Middle East and its potential ramifications continued to be the driver of risk asset prices in the second quarter of the year (Q2). Rising interest rate expectations dominated the news flow, with many central banks increasing rates and expectations for the US rate profile shifting more hawkish. The South African Reserve Bank (SARB) lifted interest rates by 25 basis points in the quarter. In this particularly volatile period, the Fund ended the quarter marginally down, albeit still 2.12% ahead of the benchmark.

Our underweight in PGMs and gold contributed positively to relative performance in Q2, as did our overweight positions in Aspen and Anheuser-Busch InBev. Our position in Northam Platinum detracted as it declined along with the rest of the sector. Key trades in the quarter were the buying of Absa, a new position, and adding to our Mondi position. This was funded from profit taking in Glencore and selling out of Impala at a good price early in the quarter.

Precious metals prices declined meaningfully in Q2, with some of the speculative froth dissipating from the market. Institutional and retail investors had bid metals up aggressively over the last nine months, and that support has started to unwind as the momentum has come out of the market. Structurally for gold, the demand from central banks has remained strong this year and is expected to continue. From a commodity point of view, oil finished Q2 down -38%, platinum down -21% and gold down -14%. The copper price rose 9% and the coal complex was up 9% on average. Iron ore dropping -6% was one of the few non-precious commodities to decline, and at $100/ton it is heading towards cost support at $90/ton. The Fund retains a high exposure to Glencore, which is benefitting from currently elevated copper and coal prices and has a good cash return programme. Within precious metals, we remain invested in Northam Platinum and Anglo Gold where there are stock-specific value drivers. The rest of the sector looks overvalued to us, as we have seen earnings rise with higher commodity prices over the last few years and price-to-earnings (PE) multiples opening up as well.

We initiated a position in Absa during the period, as low market expectations combine with a compelling turnaround story within the SA business and continued success in its African assets. We have been shareholders in Standard Bank for many years, in large part due to its successful African growth story. Absa are a close second from an African franchise perspective, and while the group contribution is smaller at one third of earnings, it offers an additional leg up to earnings growth in the years to come. Kenny Fihla joined Absa as group CEO in 2025 from Standard Bank, where he was the Chief Executive of the Corporate and Investment Bank (CIB), to much acclaim. Since arriving, he has focused the business and brought in new talent to help grow the CIB and African businesses. We have been sceptical over the strength of Absa’s South African retail franchise for a long time, and this view has been vindicated as it has shrunk itself to a near immaterial portion of earnings. On a 7x PE and 8-9% dividend yield, the market is taking a very cautious view on Mr Fihla’s ability to turn the business around. If he is successful, Absa will provide excellent returns from this base, with the high dividend yield providing some downside protection in the event of the turnaround struggling.

From a South African (SA) economic exposure perspective, we remain cautious as economic pressures have risen this year with higher oil prices and a reversal of the rate-cutting cycle. Whilst banks are exposed to the economy, they also offer a large degree of annuity income and high dividend yields which can bolster shareholder return in the event of a worse-than-expected earnings environment. The same can be said for Sanlam, which remains a core holding in the portfolio. Like Absa and Standard Bank, Sanlam has an equally strong growth outlook in its African and Indian businesses – turning a mature SA earnings stream into a potential double-digit earnings growth outlook. We retain some exposure to consumer-focused turnaround stories, Spar and Woolworths, but the bulk of our SA consumer exposure remains defensive and high-quality in nature.

Aspen was a strong contributor to returns in the quarter as well as over the last 12 months, where it has been our second largest contributor to performance after Glencore. Now that the sale of their APAC commercial and manufacturing business is complete, the group has moved from a large net debt position to near net cash. The valuation remains attractive despite strong returns this year and we are looking forward to increased capital returns and further value realisation from the portfolio. ABI was another top contributor to returns and it remains a core holding in the portfolio. This year has seen them reverse a number of years’ worth of volume declines. The valuation remains compelling, and the business continues to grow earnings in the double digits while returning cash to shareholders through buybacks and dividends.

OUTLOOK

The Fund is defensively positioned within the SA economy. We see value in select resource stocks, and we remain well invested in the global stocks that are listed in our market. Outside of Naspers/Prosus, the performance of these businesses has been strong in recent quarters, both from an operational as well as share price perspective. We are optimistic about the potential for future returns from the portfolio, given the quality of the investee companies and the attractive valuations at which they trade.

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