POST GIB INVESTMENT SUMMIT
INSIGHTS & HIGHLIGHTS
POST SUMMIT INSIGHTS
Bruce Whitfield was once again the MC of the annual GIB Investment Summit. He facilitated a successful event by setting the scene on the current state of the financial markets and how important it is to understand risk and to navigate the current volatility in the markets.
Ann-Katrin Petersen (Allianz Global Investors), a leading global economist, presented a powerful presentation on “Active is: Navigating late-cycle risks” disclosing Allianz’s top-10 global business risks for 2019 as well as key financial market drivers for the remainder of the year.
Herman Van Papendorp, head of investment research & asset allocation from Momentum, followed with an energetic presentation on the state of the SA economy “appropriate investment responses to the prevailing macro environment”. He highlighted the importance of the relationship between the economy and politics and how this has directly impacted on economic growth each year from the Madiba Magic years (2.6% growth) to Mbeki Momentum (4.2%), the Zuma Zag years (1.8%) and the potential Ramaposha Revival (currently 0.4%). He also provided an interesting perspective on the difficult reforms that will be needed to improve confidence in the local market.
Bruce then electrified the audience as he facilitated the local equity panel with some of the industry’s leading asset managers, with hard hitting questions about their top 10 equity holdings. The panel was made up of Neville Chester (Coronation), Cor Boysen (Fairtree), Duncan Artus (Allan Gray) and Simon Fillmore (Independent Securities).
Interesting points made were how Presidents Trump’s Trade War with China has renewed fears of a global economic slowdown and how the recent risk-off and risk-on environment has impacted all the local Equity managers’ Top Ten holdings, with at least one or two of each of their positions not escaping the market turmoil.
Bruce concluded the panel with one of the most controversial questions of the investment summit; “If you had an opportunity to sell one of your fellow panellist’s top 10 holdings which one would it be?“.
Two of the more influential local equity managers Duncan Artus (Allan Gray) and Neville Chester (Coronation) did not hold back. Neville sold Allan Gray’s Investec position and in return Duncan sold Coronation’s MTN.
Neville noted that Investec’s unbundling may leave what he believes to be a “reasonable” bank that does not make much money without the contribution from its quality asset management business. He went on to say that there are better quality banks at currently low prices to buy. Duncan defended his position stating that the asset business has credible local and international distribution that will unlock sufficient value. Duncan hit back asking Neville why then are Coronation one of the larger investors in Investec.
On MTN, Duncan argued that MTN Nigeria and Iran alleged shenanigans may not be behind them, and on the local front that spectrum auction may affect profits on the already margin squeezed local market. Neville explained that as the infrastructure is built, it is an easy cash generative business spanning multiple geographic regions and can easily cope on the local front with the spectrum auction.
The remaining two panellists were a little more subdued, however Simon Fillmore (independent Securities) did question Fairtree’s resource holdings in respect of late cycle commodity prices and how confident Cor can be with commodity prices remaining on the high side. Cor commented that these commodity businesses are generating outstanding cashflow even if there is a slight decline in commodity prices.
Cor then commented on Simon’s Discovery position referring to how the business may be impacted by NHI and Discovery’s aggressive accounting manner in respect to the accounting of the average age of its life book. Simon responded that Discovery is no longer just a health and life insurer and that Discovery’s business, with its multinational loyalty business and new bank should in the future generate handsome returns for Investors. He commented that each business Discovery starts takes about 5 years to be profitable.
Despite the intellectual banter, all local equity managers successfully defended their positions proving that different views ultimately create markets.
Thereafter, Cy Jacobs from 36ONE Asset Management de-mystified hedge funds by explaining their place within portfolios and how they make markets more efficient. He also provided a plausible alternative to traditional portfolios when markets are trading in the negative as hedge funds can borrow stock at a price and then later sell that stock at a profit.
Cy’s presentation left the audience hungrier than ever to witness the Hedge Fund Panel with panellists that not only pioneered the south African Hedge Fund Industry but also founded their respective houses.
Bruce Whitfield, with his usual wit, asked how short are your shorts like 1980’s rugby shorts, to try to get the panellists to disclose their current short positions. This led to a head to head with three of the industries highly respected Hedge Fund portfolio managers, Cy Jacobs of 36ONE, Jean Pierre Verster of Protea Capital Management and Murray Winckler of Laurium Capital.
It is safe to say that it got quickly got heated as they shared their strong views regarding the place for Hedge Funds in the investment Industry and why it necessary for Investors. As Jean Pierre illustrated, a hedge fund has potentially more tools to achieve returns than a traditional long only fund. He likened a long only strategy to “trading with one hand behind your back”. Bruce Whitfield did not hold back and got to the bottom of a few controversial points.
Bruce asked Jean Pierre’s about his seat on the board of Capitec and if this was a disadvantage as he was then unable to short the stock when the time was right. Jean Pierre made it clear that even though he can’t trade Capitec, the knowledge he has gained on the banking industry has far outweighed this, and he commented that there are many other opportunities that he can trade.
Cy mentioned that the infamous Viceroy report which initiated the Steinhoff collapse. Cy clarified that they were not in fact a Hedge Fund at all but rather a Publication House. It was noted that the Steinhoff report which they published was not their own research but rather that of a credible Hedge Fund that they repackaged as their own. Their subsequent report on Capitec, which was released last year, was the main contributor for the pressure on the share price as fear and speculation was rife. This, however, blew over and the share price recovered as no evidence to support their claims was discovered.
A twitter question Murray Winkler was asked was whether it is ethical to take a short position on a company and then to publish a negative report on that same company. Murray stated that one should always be able to express one’s views on an investment case whether short or long. He added that factual information only improves knowledge.
Cy Jacobs threw out the proverbial gauntlet that at a future GIB Summit, he would love to share his views on a panel of Local Hedge Fund vs Local Long Equity Fund.
GIB was extremely proud at the 2019 GIB Investment summit to showcase some of South Africa’s top asset managers regardless of whether their views are long or short. GIB is confident in the ability of the local investment industry to navigate the risk within the investment markets over the next few turbulent years, and into calmer waters that ensure investors retirement needs.