Coronation sees robust revenue growth in tough market environment
22 May 2018 - Coronation Insights
- Assets under management (AUM) of R588 billion
- Diluted headline earnings per share of 223.4 cents
- Interim dividend per share of 223.0 cents
Cape Town, 22 May 2018 – Leading independent long-term asset manager Coronation today announced interim results for the six months to 31 March 2018.
Anton Pillay, Coronation CEO, commented: “Our results are in line with management expectations. Amidst tough market conditions, we delivered robust revenue growth of 7.4% to R2.1 billion. Our variable cost model continued to contribute to the effective management of total costs and, once again, we declared an interim dividend that reflects 100% of diluted headline earnings per share.”
According to Pillay, the increase in revenue is attributable to improved investment performance during 2017 and an increase in average AUM of 6.0% in relation to the prior comparable period. “As a cyclical business, our revenue stream is highly geared to both the returns of the market and the level of outperformance we generate on behalf of clients across our fund range.”
Pillay notes that Coronation’s key driver of success is its ability to create long-term value on behalf of its clients. “As an example, over a period of almost 25 years our longest-running equity portfolio, Coronation Houseview Equity, has added 71% more value on a gross of fees basis than a similar investment in the equity market.”
He notes that while the recent performance across certain Coronation strategies has been in line with the peer average, their long-term performance remains excellent. “As an active manager, we understand that periods of average performance are part and parcel of building a superior long-term investment track record.”
According to Pillay, Coronation’s investment process identifies businesses and/or instruments that are trading below what they believe to be fair value. “This requires constant monitoring and patience - long-term investing does not mean buy and hold, it is a continuous and rigorous process.”
Pillay says Coronation continues to make substantial investments in its business infrastructure, technology and people aimed at entrenching world-class service delivery. All current projects are on track for completion before the end of 2018.
“Our strategy of building a global asset manager from South Africa is progressing extremely well.” Coronation currently manages R60 billion on behalf of several leading international retirement funds, endowments and family offices. According to Pillay, overseas investors recognise the value that Coronation brings from being domiciled in an emerging market. “We are used to the volatility in these markets; where asset managers based in developed markets may only see risk, we can identify opportunity.”
Further, Coronation’s initiatives to achieve true transformation continue to deliver meaningful and substantive results. “56% of our employees are black, of which almost 60% are black females; 63% of the board of directors are black; within our SA-focused investment team, 43% of senior portfolio managers are black; and 75% of all new hires over the past 18 months are black,” says Pillay.
He also notes that part of Coronation’s ethos since inception, has been to support the establishment of new entrepreneurial businesses, specifically black-owned businesses. “We continue to commit a minimum of 10% of our annual South African brokerage to emerging black stockbrokers, a programme launched 11 years ago.” In 2017, Coronation also supported the establishment of an independent, 100% black-owned transfer agency.
“In terms of empowering the youth of the country, we are actively involved in creating opportunities that provide access to education and participation in the economy.” Coronation funds several full higher education bursaries for study at any South African university. Students are supported by trained tutors, mentored by Coronation employees and have access to work experience opportunities at our head office. “Our successful workplace experience internship programme will be supplemented by our participation in the CEO Initiative’s Youth Employment Services programme.”
Pillay says Coronation is optimistic about the outlook for the South African economy following meaningful changes in the political leadership and certain key institutions. “While we expect economic growth to improve, we remain mindful that this may take time. Addressing the country’s long-term challenges will require hard work and patience.”
According to him, current local and global markets present significant opportunities to long-term valuation-driven investors such as Coronation. “We expect our current positioning to have a positive impact on the long-term performance across our various strategies.”
Further, in pursuing their promise to clients of delivering a world-class service, Coronation continues to strengthen its business. “By investing in our business infrastructure, technology and people we will ensure the delivery of sustainable long-term value for all stakeholders,” concludes Pillay.
Anton Pillay, Coronation
021 680 2000
Johannes van Niekerk, CapitalVoice
082 921 9110
Louise Pelser, Coronation
021 680 2216/076 282 3995
For the six months ended March 2018, local equity markets were flat. The FTSE/JSE All Share Index produced 1.0%, while the MSCI All Country World Index declined 8.6% (both in rand terms). However, local fixed interest markets continued to perform exceptionally well, with the All Bond Index delivering 10.5%. The local currency strengthened by 14.6% against the US dollar over the period to close at R11.82.
Institutional business performance
Our institutional business manages R355 billion (September 2017: R376 billion) on behalf of South African 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 total AUM of R295 billion (September 2017: R305 billion). Our local institutional portfolios recorded net outflows of R11.1 billion over the six months, compared to R43.7 billion recorded for the year ended September 2017. While we are encouraged by the sharp slowdown in net outflows, the local pension funds industry continues to see structural net outflows, given anaemic employment numbers and retrenchments in the formal employment sector. We therefore expect small levels of net outflows from this area of our business to be an ongoing feature in the years ahead.
Our decision to reopen our top performing South African Equity and Multi-Asset portfolios to new investors has been very well received by the market. While it is too soon to see meaningful flows following the reopening of these strategies a year ago, we are cautiously optimistic about the engagements taking place.
Within our South African specialist equity strategies:
- Coronation Houseview Equity has produced a return of 17.1% p.a. since its inception in October 1993, thereby delivering an active return (alpha) of 2.5% p.a.
Within our market-leading multi-asset strategies:
- Coronation Global Houseview has delivered 16.1% p.a. since its launch in October 1993, thereby representing a real return of 10.0% p.a., while Coronation Managed has produced 16.4% p.a. since its launch in May 1996, representing a real return of 10.5% p.a.
Within our South African specialist fixed income strategies:
- Coronation Strategic Bond has produced a return of 10.7% p.a. since its inception in January 2008, thereby outperforming the BEASSA All Bond Index by 1.5% p.a., while Coronation Active Bond has produced a return of 11.9% p.a. since its launch in July 2000, representing alpha of 1.0% p.a.
We manage a combined total of R60 billion (September 2017: R71 billion) in our global strategies on behalf of several leading international retirement funds, endowments and family offices. The strength of the local currency over the six months has had a significant negative impact on the AUM in rand terms. In dollar terms, AUM has remained flat relative to end-September 2017. We continue to focus on building relationships with global asset allocators to ensure that potential investors have access to our comprehensive range of products.
While an increase in volatility and geopolitical risk weighed on global market returns over the six months, we remain confident about the long-term outlook for our global strategies. Our track record in active management and asset allocation is best illustrated in the long-term value created for clients by our specialist equity and multi-asset portfolios:
- Coronation Global Emerging Markets Equity Strategy has produced a return of 8.1% p.a. (in US dollars) since its inception in July 2008, delivering alpha of 4.2% p.a., which places it in the top quartile of its peer group globally.
- Coronation Africa Frontiers Strategy has delivered an absolute return of 11.2% p.a. (in US dollars) since its launch in October 2008, placing it in the top quartile of its peer group globally.
- Coronation Global Managed Strategy has delivered a return of 8.6% p.a. (in US dollars) since its inception in November 2009, representing a real return of 6.9% p.a.
All institutional performance returns are states gross of fees.
Retail business performance
We remain one of the country’s foremost managers of long-term assets in the collective investment schemes industry, with retail assets totalling R233 billion (September 2017: R238 billion). Savings levels continued to be impacted by weak economic conditions over the period, contributing to subdued net inflows at an industry level. Against this backdrop, we experienced net outflows of R1.4 billion for the six months compared to R6.9 billion for the 12-months ended 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 4.1% p.a. since its inception in October 2000, and by 3.5% 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 2.4% p.a. and inflation by 8.4% 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 6.3% p.a. over this same period.
- Coronation Balanced Defensive, a top performing conservative fund, has produced a real return of 3.5% 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 1.0% 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 1.1% p.a. over this same period.
All performance returns are stated net of fees for the respective retail classes.
Any information being provided herein (the “Information”) is not designed for use in any jurisdiction or location where the publication or availability of the Information would be contrary to local law or regulation. If you have access to the Information it is your responsibility to be aware of and to observe all applicable laws and regulations of any relevant jurisdiction and it is recommended an investor first obtain appropriate legal, tax, investment or other professional advice prior to acting upon the Information. Coronation Asset Management (Pty) Limited and Coronation Investment Management International (Pty) Limited are authorised Financial Services Providers regulated by the Financial Services Board of South Africa. Coronation Asset Management (Pty) Limited and Coronation Investment Management International (Pty) Limited are subsidiary companies of Coronation Fund Managers Ltd, a company incorporated in South Africa and listed on the JSE (ISIN: ZAE000047353). The Information is for information purposes only and does not constitute or form part of any offer to the public to issue or sell, or any solicitation of any offer to subscribe for or purchase an investment, nor shall it or the fact of its distribution form the basis of, or be relied upon in connection with, any contract for investment. Unit trusts should be considered a medium- to long-term investment. The value of units may go down as well as up, and is therefore not guaranteed. Past performance is not necessarily an indication of future performance. Note that individual investor performance may differ as a result of the actual investment date, the date of reinvestment of distributions and dividend withholding tax, where applicable. Where foreign securities are included in a fund it may be exposed to macroeconomic, settlement, political, tax, reporting or illiquidity risk factors that may be different to similar investments in the South African markets. Fluctuations or movements in exchange rates may cause the value of underlying investments to go up or down. Coronation Management Company (RF) (Pty) Ltd is a Collective Investment Schemes Manager approved by the Financial Services Board in terms of the Collective Investment Schemes Control Act. Unit trusts are traded at ruling prices set on every trading day. Unit trusts are allowed to engage in scrip lending and borrowing. Coronation Fund Managers Limited is a Full member of the Association for Savings & Investment SA (ASISA).Opinions expressed in this document may be changed without notice at any time after publication. Nothing in this document shall constitute advice on the merits of buying and selling an investment.