The R86 million SCI Balanced Garnet fund has outperformed over the past 12 months. For the year ending October 31, the fund was ranked 11th among mixed asset participation trusts of Citywire, an aggressive category in South Africa, with a return of 36.4%.
Granate Asset Management portfolio manager Paul Bosman believes that what sets Garnate apart from other firms is its carefully selected investment team, philosophy and approach. Bosman co-manages the fund with Bronwyn Blood and Vaneshan Naidoo.
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Since its inception in February 2020, the fund has returned 19.6% annualized compared to 9.4% for the benchmark. Your benchmark is consumer price inflation plus 5%.
“Many asset managers are obsessed with assets, but we are obsessed with people and our culture. The people we let into Garnet have to pass a very high obstacle, no [only] in terms of capacity, but also in terms of adequacy and sharing our values and purposes, ”Bosman told Citywire South Africa.
“Managing money requires a commitment. It’s not something you can do from eight to five. It takes tremendous dedication. If we don’t do our job properly, our clients end up not having enough money to retire.
“His philosophy needs to create favorable odds without taking great risks. By risk, I mean highly concentrated portfolios or investing in instruments that could shut down or malfunction. ”
In terms of portfolio drivers, Bosman said domestic equities contributed the most to the fund’s performance over the past year.
“Since February 2020, domestic equities have contributed 16% to the fund’s total cumulative return and foreign equities have contributed 12%. The bonds contributed slightly more than 4%. Our best performing stocks that contributed to the fund’s performance were Capitec, Afrimat, LAM Research Corporation, which supplies materials to the semiconductor industry, Mr Price and Raubex ”.
At the end of September, the fund was weighted 40% in local equities, while 26% of its holdings were held in foreign equities. The fund also had a 24% weight for bonds, including 10% invested in inflation-linked bonds and a 6% weight for ownership.
Asset class views
Bosman said South African government bonds with yields between 9% and 11.5% remain attractive.
“We continue to obtain inflation links with very high real returns. So the bank paper north of the real 4% is very attractive, but that opportunity will not be around forever. ”
He said local stocks are also significantly undervalued.
“[Even] expensive-looking companies like Price and Capitec can still do very well. Those companies will continue to grow at a very steady rate for the next five to ten years. Then there are industrial companies that could do very well too, even with marginal economic growth, like Raubex and Hudaco Industries.
“A company like Afrimat that has its exposure especially to underestimated and underdeveloped mines can grow very well. We are finding attractive consumer and industry-related select stocks. Nedbank is significantly undervalued. The bank’s true rating could be higher given the return on equity it generates.
“Capitec can continue to increase its profits for a long time. Capitec started in the unsecured loan market and has a 24% market share in that portion of the market. That’s a reasonable percentage, but they can keep growing there. With retail deposits, they only have 8% of the market. There is also a lot of growth there.
“They have a market share of around 4% in credit cards, so they can grow in that area for a long time. Funeral policies are a high-profit area for financial services companies, and Capitec’s market share is slim. In small and medium business banking, where they bought Mercantile Bank, their market share is very low. In all those product ranges, they can still grow for years.
“Value investors would say that Capitec is expensive on a price-to-benefit ratio. But if you’ve been looking at it that way, you’ve been wrong, from R2 to almost R2000 per share. It is a company that can continue to grow rapidly ”.
Garnet Asset Management has assets under management of more than R5 billion and 15 employees. The Garnet SCI Balanced fund is one of the fund manager’s four-unit trusts.
Justin Brown is a reporter for Citywire, providing insights and information for professional investors around the world.
This article was first published on Citywire South Africa hereand republished with permission.