Tuesday, January 18

Sygnia performs despite ‘turbulent’ economic environment


Shares in publicly traded fund manager Sygnia closed more than 4% on Tuesday (at R18 per share) after the group, founded by Magda Wierzycka, reported strong performance for the financial year through the end of September. of 2021.

Sygnia itself has set the bar very high to become one of South Africa’s largest asset managers since its formation in 2006 and its listing on the JSE in 2015.

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Highlights of the group’s performance throughout 2021 include:

  • Assets under management and administration increased by almost 18% to R296.4 billion (2020: R251.8 billion).
  • Revenues increased 11.5% from R661 million to R737.2 million.
  • Profit after tax reached R240.9 million (about 17% compared to R206.1 million in fiscal year 2020).
  • Overall earnings per share of 170.7 cents (2020: 146.4 cents), an increase of 16.6%.

The dividend was increased to R1.35 per share, after R1.10 paid the previous year.

Turbulent backdrop

Management says this was achieved during another challenging and economically turbulent environment for cyclical companies like Sygnia.

“During the period, the FTSE / JSE All Share Index returned 23.2%, the JSE All Bond Composite Index 12.5% ​​and the MSCI World Index, in SA rands, 16.2%.

Read: Sygnia, Wierzycka and various ‘small related party transactions’

“Growth [in assets under management] it has taken place in an environment where the market for institutional savings is shrinking due to almost negligible economic growth, business closures and downsizing in South Africa, ”said management.

On the operations side, it should be noted that the growth of assets under management was driven by retail investors, rather than by obtaining mandates from institutions.

Sygnia CEO David Hufton notes that the long-term “superior” performance of Sygnia mutual funds has been a major factor behind this growth in retail cash flow, as well as the launch of several new funds. .

“The range of funds managed by Sygnia continues to rank in the top quartile of performance surveys in most medium and long-term risk profiles. This performance is a combination of low-cost strategies and a strong focus on macroeconomic trends, which drive active asset allocation decisions.

“Sygnia’s focus on low-cost investment and savings products and service provision has meant that, unlike our competitors, we have experienced little pressure on administration fees,” says Hufton.

Read: Top Performing Global Equity Funds Available in SA

Sygnia also mentions that past initiatives, such as the launch of Sygnia Umbrella Retirement Funds in 2016 and the acquisition of a liability asset management business from Deutsche Bank in 2017 (renamed Sygnia Itrix), are beginning to materially contribute to results.

The retirement umbrella fund business is now the sixth largest umbrella fund offering in SA, while Sygnia Itrix is ​​the second largest provider of exchange-traded funds (ETFs) listed on JSE and the largest SA company offering International ETFs to the local market.

Offshore expansion

The company’s offshore expansion will be worth watching. Hufton notes that international expansion is not expected to materially contribute to results in the foreseeable future, but is seen as an exciting opportunity to diversify revenues in future years.

Sygnia has recently launched a series of Irish registered funds that will be marketed to South African clients with existing overseas investments, as well as through international investment platforms.

Management also notes that the trend towards passive investment strategies is increasing in South Africa.

“Sygnia is well positioned to take advantage of growing skepticism among investors about the more expensive alternative to active management, especially in an underperforming environment,” Hufton says in his comment on the results.

Read: Sygnia Criteria for Selecting Active Managers

“Thematic investing is also gaining popularity and our niche funds continue to enjoy good entries.”

Market conditions

Expert opinions on investment markets are worth taking note of.

Sygnia believes that while 2020 has seen a remarkable recovery in markets from the Covid-19-induced recession, it has also brought with it the shadow of rising inflation for the first time since the 2008 global financial crisis.

“This fear of rising prices has also led to the realization that central banks around the world will need to normalize monetary policy and end the great liquidity experiment, which has greatly benefited markets like South Africa,” he notes.

“The rand has strengthened about 10% over the past year, but as a nation we still have a huge fiscal imbalance to deal with. Positive terms of trade, particularly high commodity prices, also provided tailwinds for the local currency, but supply chain bottlenecks and the energy crisis will soon turn them into headwinds, and the treasury will have to be very disciplined to avoid a debt trap.

“Within our managed portfolios, we are still positioned for a low-growth, underperforming environment, with the world experiencing financial repression as the role of governments and central banks intensifies,” according to Sygnia.

porcelain

The Sygnia team also made interesting comments about China.

The Chinese government is aggressively pursuing its “common prosperity” policy, which has focused on the uncontrolled growth of its many global technology companies.

“This had a domino effect domestically, as the Naspers / Prosus group was particularly hit due to its large stake in Chinese internet giant Tencent, which remains on the right side of government policy and is likely to be on the right side of government policy. action recovers, “he says. administration.

“We anticipate that China and the world economy will be hit by three problems in the coming years. First, despite widespread fears of increased government oversight, the Chinese government does not intend to completely paralyze its tech companies, and its top regulators have assured investors that the stricter rules are not intended to aim to stifle the private sector.

“Second, while property development firm Evergrande’s default has raised concerns about the extent of China’s real estate slowdown and how sustained the broader contagion will be, Beijing is expected to continue to balance common prosperity with economic stability. . Although Evergrande’s shareholders and bondholders are likely to be sacrificed, the real estate sector and the Chinese economy will survive.

Third, China’s monetary policy is becoming more stimulating with the People’s Bank of China cutting bank reserve requirements in July. In September, the State Council announced an additional RMB 300 billion in credit support for small and medium-sized businesses, ”says Sygnia.

Recovered

Like most stocks, Sygnia rebounded sharply from its low of R7.50 during JSE’s Covid-19 infection in March 2020.

Shareholders appeared happy with Tuesday’s results and the stock, while still below its recent high of R21, added 80 cents to close at R18.


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