Having sold out of Absa and Standard Bank, the Investec Value Fund has zero exposure to the big four banks for the first time since portfolio manager John Biccard took over the management of the fund more than 10 years ago, according to a press statement issued by Investec Asset Management.
The only bank exposure the Investec Value Fund has left is small holdings in African Bank and Investec. Biccard has also taken his exposure to retailers right down to zero, while the portfolio now has a sizeable 25% in resources.
What has caused this transformation? According to Biccard, the answer lies in the exceptional performance of “SA Incorporated” stocks both over the last decade and over the last two years. “This performance has resulted in the valuations of banks [at 15 times historic earnings] and retailers in particular [at 15 to 20 times historic earnings] now appearing very full to us, particularly considering that retailers’ earnings remain at peak levels and banks’ earnings are only slightly depressed.
“This is in stark contrast to the beginning of the decade, when one could buy both groups on depressed earnings and single digit PEs. So while there was a large ‘margin of safety’ at the beginning of the decade with respect to investing in these shares, the outcome today for ‘SA Incorporated’ stocks needs to be very good to even come close to justifying the current ratings.”
According to Biccard, the up-weighting of resources in the portfolio should not be seen as a sector call but rather the purchase of four individual stocks that happen to be in the resources sector.
“Having underperformed, these shares are now offering great medium-term value. Our holdings in Sasol, Goldfields, Sappi and ArcelorMittal provide exposure to rand hedges at a low cost. They also take advantage of situations where we believe shorter-term problems, such as productivity in South African gold mining and the dispute with Kumba in the case of ArcelorMittal, are overly discounted in the current share prices.”
additional reporting Maya Fisher-French
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