Old Mutual Investors comment - Sep 11 - Fund Manager Comment27 Oct 2011
Although the third quarter was marked by significant volatility, the SWIX was down by only 4.3% despite an abundant level of fear and risk aversion. The high level of withdrawals from emerging markets reflected the heightened level of risk aversion. Foreigners sold R20.1bn of South African equities during the quarter after being buyers of R6.0bn in the second quarter. Our market was down 6.9% in US dollar terms compared to the S&P500, which declined by 14.1%.
Investors typically flee to safety, even if that safety is expensive, when fear and volatility rise. This was to the benefit of the fund's quality holdings such as SABMiller, British American Tobacco and Life Healthcare. The former two also act well as rand hedges and benefited the fund as the rand weakened. As mentioned in last month's comments, we recognise that while there are significant risks in the global economy, we do not expect a wide-scale global recession. While the fund holds a significant number of good quality defensive shares, we also hold a number of shares which are more affected by the economic cycles and we expect these to deliver good returns as markets settle and risk aversion, which is at an extreme, abates.
Old Mutual Investors comment - Jun 11 - Fund Manager Comment19 Aug 2011
For the second quarter of 2011, domestic equity markets declined, with the FTSE/JSE All Share Index (ALSI) marginally down by 0.6%. Amongst the best-performing sectors were healthcare (+6.9%) and telecommunications (+5.4%), while amongst the worst were gold mining (-13%) and oil & gas (-8.5%).
Markets have sold down on the back of a reduced appetite for risk by investors, as concerns have increased over the Greek debt issue and the possibility that the global economy is slowing towards recession. It is our view that these concerns are overstated and the deceleration reflects a normal mid-cycle slowdown. The short-term impact of the Japanese earthquake on global demand also needs to be considered.
We adopted a cautious approach as the markets sold off, but then looked for opportunities to invest cash in companies whose share prices had been sold to very cheap levels. Anglo American and BHPBilliton offered excellent opportunities to add to the existing investments as markets panicked, and these share prices discounted very bearish scenarios. We took some profits in MTN, but then bought back shares as the price fell back towards the 13500 level. The fund's low exposure to gold and platinum shares has so far proven to be correct, as these share prices continued to underperform. Our preference for the gold ETF over the gold shares has worked well.
We expect markets to improve in the second half of this year as the global economy strengthens. Selective resources shares continue to offer attractive value in this environment relative to financial and industrial shares. Overall, we favour companies with strong cash flows and which trade at a discount to intrinsic value.
Old Mutual Investors comment - Mar 11 - Fund Manager Comment24 May 2011
During the volatile first quarter of 2011, cash was allowed to build up in the fund as the market continued to rise, before falling sharply at the time of the Japanese earthquake tragedy. My view, despite this crisis, was that the disruptions caused by the damage would not derail the outlook for global growth and we invested the cash back into the market at the lows. This benefited investors as the market recovered strongly.
Conditions remain positive for the market, although some caution is appropriate as the year advances and investors start eyeing possible interest rate hikes. Diversified commodity shares remain attractive, although their performance has been restricted by the strong rand. Buying selectively is important, with many shares approaching full value.
Old Mutual Investors comment - Dec 10 - Fund Manager Comment17 Feb 2011
Our view that world equity markets would continue to recover in 2010 has proven to be correct, however, it has been a difficult environment with high volatility reflecting investor nervousness. The "easy money" has been made for now, although the equity market should continue to be supported in the short term by low interest rates. Developed equity markets are expected to outperform developing equity markets after the strong outperformance of emerging market equities over the last few years. With investor and consumer confidence improving, we expect the upswing in economic activity to ultimately result in market expectations shifting towards rising interest rates.
We recognise that the value gap between the higher-beta shares (shares which typically boost performance in a rising market) and the more defensive, lower-beta shares has narrowed, suggesting a more cautious stance as we move further along the economic cycle in 2011. Anglo American Plc is a higher-beta share where we have identified significant value, and it is pleasing to see the market more recently recognising its undervaluation. MTN is another large holding where the share price has risen materially since we bought aggressively at the R100 level. Naspers and Richemont have both added significant value to investors in our fund over the last 12 months, although we have now taken some profits at these high levels. Naspers remains an attractive investment. We did not have a large position in the retailers, which rose sharply over the last 12 months, and we have continued to sell down the stakes in the companies in which we were invested, as valuations are u