South Africa’s best-performing equity fund has benefited from a bet that battered stocks, especially in the energy sector, would prosper as economies rebound from the worst of the pandemic.
The Blue Quadrant Capital Management Global Flexible Prescient Fund has returned 125% this year, the most of any South African fund of at least R100 million, and more than double that of its closest rival. The additions made as Covid-19 devastated the markets in the first quarter of 2020 have proven to be key, said Leandro Gastaldi, who heads the R120 million portfolio.
“We were expecting recovery and it is largely a function of the Covid pandemic recovery and the effect of that on the energy sector,” he said.
Energy accounts for 45% of the fund’s assets, reflecting a four-year stance, Gastaldi said in an interview from Cape Town. Blue Quadrant has long been positive on oil and gas, arguing that a period of lower prices had led to underinvestment. The gamble paid off as the pandemic further discouraged spending on capacity, creating the conditions for a contraction in supply and a rise in prices as economies reopened.
|Gastaldi’s largest holdings as of September 30|
|Cenovus Energy Inc.|
|Occidental Petroleum Corp|
|Antero Resources Corp|
|Suncor Energy Inc.|
|Thungela Resources Ltd.|
While foreign equities account for much of the fund’s energy allocation, Gastaldi has also added South African equities to take advantage of hit valuations, with domestic small and medium-sized companies now holding 30% of the portfolio.
“Valuations at many companies were probably more depressed than ever,” he said. “That created an opportunity to increase one’s exposure to South Africa.”
Fertilizer and explosives maker Omnia Holdings and wood fiber and paper maker Sappi are among the shares bought, along with coal miner Thungela Resources, the third best performing company of the year in Johannesburg, and Harmony Gold Mining. Another is Royal Bafokeng Platinum, which is up nearly 80% this year and is now in talks to be acquired by its larger rival, Impala Platinum Holdings.
There are still opportunities in South Africa, although the local market’s 80% recovery from its pandemic-induced decline of March 2020 puts a premium on stock selection and creates a preference for companies with foreign-based earnings and resistance to the country’s frequent blackouts and surges. energy prices, Gastaldi said.
“It’s in companies that we think can benefit from a weaker rand and have the ability to weather domestic challenges, particularly the electricity challenge.”
And that commitment to energy stocks will continue.
Gastaldi expects oil to rise above $ 100 a barrel. But even if not, oil companies can be an attractive proposition.
“We see them generating a lot of free cash flow and we see them using this to pay dividends or buy back shares, which will ultimately generate higher returns, even if the price of oil just stays where it is.”
© 2021 Bloomberg