Christo Lineveldt is an investment specialist with 14 years of investment industry experience.

Here are few funds that manage to beat the market substantially over meaningful periods of time. The Coronation Top 20 is one such fund. Over its 21-year track record, the fund has turned the local equity market's already impressive 15-bagger into a 27-bagger. A phenomenal result for long-term investors in the fund.

What makes the Coronation Top 20 Fund unique?

The Coronation Top 20 is an actively-managed portfolio of what we believe to be the  best opportunities on the JSE. The fund is limited to investing in no more than 20 stocks at any given point in time compared to 50 to 60 stocks held by a typical actively-managed equity fund, and more than 140 stocks for passive funds tracking a broad SA equity index. This level of concentration means that investors in the fund get access to amplified exposure to Coronation's highest-conviction active positions on the JSE. As a result, the fund's potential to generate alpha increases but this also means that its investors have to endure lumpy returns over the shorter term. The reward, however, is exceptional wealth creation in the long run as is clear from the graph. In many ways, one can compare it to having your personal share portfolio managed by Coronation's investment team.

To what do we ascribe the fund's success?

1. Long-term focus of an incredible research effort

The fund's track record is a direct result of leveraging the in-depth, proprietary research of our investment team of roughly 70 professionals. Everything we do ensures that we analyse, debate and ultimately value businesses based on their long-term fundamentals. This, we believe, gives us a distinct advantage over the average investor.

2. High conviction and discipline

The 20-stock limit requires incredible buy and sell discipline from the fund's managers. To include a new idea in the portfolio, it could necessitate the sale of the least attractive idea, meaning that investors buy into a portfolio that comprises our highest-conviction views only. While the number of shares that can be held within the portfolio is capped, there are no restrictions on how much exposure the fund can have to the different sectors on the JSE.

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Current positioning

As with any Coronation fund, we seek to build a portfolio that can withstand a range of outcomes. As such, the fund remains relatively defensively positioned in counters that are exposed to the SA economy, with holdings spanning the banks, life insurers and food retailers. Our SA Inc holdings sit alongside great global businesses, growing strongly at attractive valuations; and mining shares (as is clear from our top-10 holdings below) which also have attractive valuations and material free cash flow yields. A recent change in fund holdings include having exited our FirstRand position during the quarter to end-September as its margin of safety reduced, while initiating a new position in
Dis-Chem where we expect the combination of strong top-line growth and margin improvement to drive earnings growth in the teens for years to come.

Outlook

The application of our intensive, long-term-focused approach has been crucial in consistently identifying undervalued ideas for the fund over the past 21 years, and what has enabled a highly-focused portfolio like Coronation Top 20 to deliver significant alpha to investors in the long term. We continue to find attractive opportunities across the breadth of the market - mining stocks, global businesses that happen to be listed here, and pure SA-exposed stocks. We believe this sets the fund up well for prospective returns in the coming years.

CORONATION TOP 20 HIGHLIGHTS (AS AT 30 SEPTEMBER 2021):

  • 1st in the Asisa South African - Equity - General category since inception 21 years ago
  • Delivered 5%** annualised alpha compared to benchmark after fees
  • Outperformed the category average by 4% per year after fees.

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*finweek is a publication of Media24, a subsidiary of Naspers

**Coronation is an authorised financial services provider. For full fund details, please refer to its minimum disclosure document.

Christo Lineveldt is an investment specialist with 14 years of investment industry experience.


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