Conditions challenging but Coronation’s long-term investment returns remain strong
20 November 2018
- Assets under management of R587 million
- Diluted headline earnings per share of 420.7 cents
- Final dividend per share of 420.0 cents
Cape Town, 20 November 2018 - Valuation-driven, long-term asset manager Coronation Fund Managers today announced its annual results for the year ended 30 September 2018.
Amidst challenging market and industry conditions, assets under management declined by 4.4% to R586 billion (September 2017: R614 billion) and revenue fell by 1.8% to R3.8 billion (September 2017: R3.9 billion). Headline earnings per share declined by 3.8% to 420.7 cents (September 2017: 437.5 cents).
Coronation chief executive Anton Pillay comments: “We experienced acute cyclical market pressures over the past 12 months, affecting our revenue which is highly geared to returns of the market and the performance we generate on behalf of our clients.”
Over the reporting period, deteriorating financial conditions placed emerging markets under pressure. Combined with an already weak domestic economy, this resulted in the FTSE/JSE All Share Index producing a mediocre return of 3.3% for the year. Emerging markets (MSCI Emerging Markets Index) lost 0.8%, while developed markets (MSCI All Country World Index) gained 9.8% (both in US dollars), and the rand weakened by 4.3% against the US dollar to close at R14.20.
Portfolios positioned to unlock long-term value
Pillay commented: “While our Fixed Interest and Frontier Markets strategies have had an excellent 12-month period, our SA equity and Emerging Markets equity portfolios haven’t performed in line with our expectations of ourselves or those of our clients.”
He went on to say that longer-term performance across Coronation’s entire fund range remains excellent. This includes the full suite of local equity, fixed income, multi-asset class, frontier and emerging market equity products. “We remain confident that our portfolios are positioned to unlock long-term value for our clients.”
Looking forward, Pillay says Coronation is more optimistic about the outlook for the major South African asset classes. “Following a period of very disappointing returns, we are seeing above-average opportunities for long-term, valuation-driven investors such as ourselves.”
He adds that they are confident in the long-term outlook for their global strategies as well as their value proposition to clients through active management. “While the outlook for global asset classes is more mixed, this has enabled us to construct differentiated portfolios.”
The Coronation Global Emerging Markets Strategy achieved its 10-year milestone in July, while the Coronation Africa Frontiers Strategy reached its decade-long track record in October.
“We are proud of the performance and credibility achieved relative to their respective global peer groups. In addition, despite a very difficult decade for the African continent, our Africa Frontiers Strategy delivered strong absolute returns compared to its benchmark and the broader emerging markets grouping,” says Pillay.
Slowdown in net outflows
According to Pillay, net flows out of their local institutional portfolios almost halved to R22.6 billion when compared to the prior financial year. “While this outcome was better than expected, our flow experience in this area of our business is a function of ongoing structural net flows out of the local institutional savings market, the poor local economic environment and the impact of a historic five-year closed period for our SA Equity and Multi-Asset strategies, which represented one of the longest institutional product closes by an asset manager in South Africa.”.
Weak economic conditions also impacted savings levels of individual investors, against which backdrop their unit trust funds experienced net outflows of R4.2 billion. “Again, this was a better outcome than what was recorded in the prior financial year.”
Looking abroad, Coronation’s global institutional strategies saw insignificant outflows over the period, given the material shift towards passive strategies away from active managers.
Effective cost control despite ongoing investment in business
Coronation remains a significant manager of savings in South Africa with a growing international brand. “This requires ongoing investments into our business to enhance our capacity to deliver world-class service to our global client base,” says Pillay.
While the costs associated with implementing these initiatives as well as related systems changes impacted fixed expenses during the year, a commensurate decrease in variable expenses mitigated this impact. As a result, total operating expenses remained flat year on year, which we believe to be a credible performance in an economy with inflationary cost pressures and a good outcome for our shareholders.
“As a proudly South African company, for the past quarter of a century, we have been active participants in advancing meaningful transformation not only within our own business, but also in the broader industry as well as the communities in which we operate,” explains Pillay. Coronation is 23% black-owned as measured by the Financial Sector Charter, and 58% of its employees are black, of which close to 60% are black females. Notably, 78% of new hires in 2018 are black. Based on an initial assessment of the revised Financial Sector Charter, Coronation should achieve a Level 2broad-based black economic empowerment rating by the end of calendar year 2018. The business is currently rated as a Level 3 contributor.
Pillay concludes, “We are optimistic that the current positioning of our strategies will generate higher future returns for their clients. Together with increased investment in our infrastructure, technology and people over the past year to support the provision of world-class service to our clients, we believe this will ensure the delivery of sustainable long-term value for all stakeholders.”
- General inquiries: Anton Pillay, Coronation
021 680 2000
- Analyst inquiries: Johannes van Niekerk, CapitalVoice
082 921 9110
- Media inquiries: Louise Pelser, Coronation
021 680 2216/076 282 3995
Our institutional business manages R346 billion (September 2017: R376 billion) on behalf of South African institutions and a growing number of global clients.
South African clients
We continue to manage a meaningful share of assets in the local pension funds industry, representing a total AUM of R285 billion (September 2017: R305 billion), making us one of the largest independent managers of pension assets in the country.
Our local institutional portfolios recorded net outflows of R22.6 billion over the 12 months to end September 2018 (2017: R43.7 billion), representing 7.4% of our opening balance for local institutional assets and a material improvement on the outflows experienced in the three years prior. This outcome was significantly better than expected, given that the local institutional savings market continues to see structural net outflows and our SA Equity and Multi-Asset strategies only reopened to new institutional clients in March 2017. The reopening followed a five-year closed period, representing one of the longest institutional product closes by an asset manager in South Africa.
Within our South African specialist equity strategies:
- Coronation Houseview Equity has produced a return of 16.6% p.a. since its inception in October 1993, delivering an active return (alpha) of 2.3% p.a.
Within our market-leading multi-asset strategies:
- Coronation Global Houseview has delivered 15.9% p.a. since its launch in October 1993, thereby achieving a real return of 9.8% p.a., while Coronation Managed has produced 16.1% p.a. since its launch in May 1996, representing a real return of 10.2% p.a.
Within our South African specialist fixed income strategies:
- Coronation Strategic Bond has produced a return of 9.8% p.a. since its inception in January 2008, thereby outperforming the All Bond Index by 1.4% p.a., while Coronation Active Bond has produced a return of 11.4% p.a. since its launch in July 2000, representing alpha of 1.0% p.a.
We manage a combined total of R61 billion (September 2017: R71 billion) in our global strategies on behalf of several leading international retirement funds, endowments and family offices. Net outflows of R4.2 billion represented only 5.9% of our opening AUM; a reasonably good outcome, given the material shift towards passive strategies away from active managers. Our global emerging markets strategy achieved the 10-year milestone in July and we are exceedingly proud of the performance and credibility achieved relative to the global peer group.
We remain confident in the long-term outlook for our global strategies as well as their value proposition to clients through active management:
- Our Africa Frontiers Strategy has delivered a strong absolute return of 9.5% p.a. (in US dollars) since its launch more than 10 years ago in October 2008, placing it in the top quartile of its peer group globally.
- Despite experiencing some pressure in the short term, the long-term alpha generated by our Global Emerging Markets Equity Strategy remains strong at 3.4% p.a. since its inception more than a decade ago in July 2008. This performance places it in the top quartile of its peer group globally.
- Coronation Global Managed has delivered a return of 8.2% p.a. (in US dollars) since its inception in November 2009, representing a real return of 6.4% p.a.
All institutional performance returns are stated gross of fees.
We remain one of the country’s leading managers of long-term assets in the collective investment schemes industry, with retail assets totalling R241 billion (September 2017: R238 billion). Once again, net inflows at an industry level were subdued, driven by weak economic conditions impacting savings levels. Against this backdrop, we experienced net outflows of R4.2 billion for the 12 months under review, compared to R6.9 billion for the previous reporting period to end September 2017.
Performance highlights across our domestic and international fund range are detailed below, reflecting consistent first-quartile rankings in their corresponding Morningstar categories since their respective inception dates:
- Coronation Top 20, a top-performing general equity fund, has outperformed its benchmark by 3.7% p.a. since its inception in October 2000, and by 1.2% p.a. over the past 10 years.
- Coronation Balanced Plus, the no. 1 balanced fund in South Africa since its launch in April 1996, has outperformed its average competitor by 2.0% p.a. and inflation by 8.7% p.a. over this same period.
- Coronation Capital Plus, the no. 1 multi-asset medium equity fund since its inception in July 2001, has delivered a real return of 6.2% p.a. over this same period.
- Coronation Balanced Defensive, a top-performing conservative fund, has produced a real return of 3.6% p.a. since its launch in February 2007.
- Coronation Strategic Income, the no. 1 multi-asset income fund since its launch in July 2001, has outperformed cash by, on average, 2.6% p.a. over this same period.
- Coronation Global Opportunities Equity [ZAR] Feeder, a top-performing global equity general fund since its launch in August 1997, has outperformed the global equity market by 0.9% p.a. over its more than 20-year history.
- Coronation Global Managed [ZAR] Feeder, the no. 1 global multi-asset high equity fund in South Africa since its launch in October 2009, has outperformed its average competitor by 1.5% p.a. over this same period.
All performance returns are stated net of fees for the respective retail classes.