Fund Name: Investec Value Fund Portfolio Manager: John Biccard
Fund Description
The Investec Value Fund is a specialist equity fund which aims to provide capital growth over the long term by investing in value stocks. The aim is to provide returns well above the FTSE/ All Share Index, measured over three years. This fund seeks to achieve this through value investing, a strategy of favouring stocks that trade for less than their inherent values. The fund also selects equities with appealing dividend yields and stable cash flows that are undervalued by the market.
Past Performance
Background
From inception (the first 7.5 years) to the end of 2007 (the start of the global financial crises) the fund outperformed the All Share Index by 5% p.a. and was the best performing general equity fund. Since then – the past 8 years – the fund has underperformed the All Share Index by 3.7% p.a. and has been one of the worst performing funds in the industry.
The major decline in performance can be ascribed to two major reasons:
1) After the global financial crises the fund manager believed (and still does) that quantitative easing (financial stimulus intended to restore economic growth) would result in a financial crisis and a major devaluation of global equities.
2) The style of value investing has underperformed as financial stimulus has pushed most valuations well out of historical value levels.
Investment Style
The fund has a distinctly contrarian approach as a pure stock picker with no regard for macro forecasts. It’s positioned in grossly out of favour (very deep value) shares that could produce exceptional returns into the future.
The fund’s major positions:
Gold shares 23%
Platinum shares 16%
Sappi & Arcelor 6%
Offshore 42%
The majority of offshore investments are in Japanese equities with the Japanese Yen hedged out into the US dollar.
Flow of funds
In excess of 50% of the fund has been redeemed over the last five years. Recently, outflows have slowed and the fund is not at risk of liquidity constraints.
Is the Fund Manager invested in the fund?
In excess of 50% of the Fund Manager’s wealth is invested in the fund or its underlying investments.
Fund Manager’s key views
- Global valuation risks are high.
- The global economy is facing a deflationary collapse and only gold and cash will protect you.
- World debt as a % of GDP continues to climb and this is unsustainable resulting in slower growth.
- Valuation gaps between cheapest and most expensive shares are the biggest ever.
- US and global interest rates will remain lower than market expectations as global growth stutters along.
- Platinum shares are extremely undervalued with a platinum deficit which should restore more normal valuations.
- The value investing cycle has turned positive after a four -year downward trend.
The Fund Manager sees the fund as relatively low risk given its deep value positions and hence “low downside risk”. He has a major vested interest in the fund and is extremely confident the fund will return to strong outperformance in the not too distant future.
Investonline views
We believe the fund’s long underperformance is near an end and the value cycle appears to be turning positive. There is potential for significant value appreciation. But this is a high-risk fund and patience is important.
Over time, value investing has produced the best returns. The change in market dynamics since the financial crises (2008) has suppressed value style opportunities. Value investing will regain favour again which will produce exceptional returns off its depressed base.
The fund’s significant different holdings relative to other equity funds will provide an attractive position in a diversified high risk portfolio.
