By Jaco Visser
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South Africa’s second-best-performing balanced fund over the year ended June, the Centaur BCI Balanced fund, owes its fortunes to offshore and local picks – but not necessarily the ones you might think.
The fund, managed by Nick de Vos and Citywire + rated Roger Williams, returned 10.9% (not annualised) in the first half of the year, 19.5% over the past 12 months and an annualised 11.2% over the last three years. It comfortably beat its composite benchmark over one, three, five and ten years.
Over three years ending June 2024, the fund has ranked 21st out of 203 South African multi-asset, high equity funds, as classified by the Association of Savings and Investment South Africa (Asisa). It is sixth out of 182 funds over five years and fourth out of 91 over 10 years.
Notably, the biggest contributors to the fund’s performance didn’t include the Magnificent Seven – Microsoft, Nvidia, Apple, Meta Platforms, Amazon, Alphabet (owner of Google) and Tesla – among offshore picks. Neither did it feature large offshore-facing South African listed counters, bar maybe Aspen.
‘Dell has been a real winner,’ de Vos said, speaking to investors during a webinar. ‘That one is up more than three times from where we originally bought into the investment. It’s up 81% in the first half.’
By the end of June, Dell constituted 4.2% of the Centaur BCI Balanced fund and contributed 2.7 percentage points to the fund’s first-half returns. Since then, the fund has taken profit on the back of the company’s strong run, said de Vos.
Another offshore pick that boosted the fund’s performance is Brilliance China Automotive.
‘Brilliance China is quite an interesting one. It’s more than doubled so far this year,’ de Vos said. ‘It’s a special-situation cash shell that’s been returning capital to shareholders via very large dividends.’
Brilliance China has gained 132% in the first six months of the year and contributed 1.5 percentage points to the Centaur BCI Balanced fund’s returns over the same period.
Domestic stocks
On the domestic front, Aspen Pharmacare has bolstered the fund’s returns by 0.7 percentage points after the stock rallied 15% in the year through the end of June. The stock was the largest local holding, at 5.1%, of the fund as of 30 June 2024.
However, as always, the fund’s performance during the first half was criticised –especially local stocks.
‘Remgro has been a little disappointing; that’s down 15%,’ de Vos (pictured below) said. ‘We think there are a couple of changes underway. So, we’re still happy to hold it.’
Earlier this year, Remgro appointed Carel Vosloo, a former executive at Rand Merchant Bank, as an alternate director for CEO Jannie Durand. In June, Remgro’s subsidiary RCL Foods unbundled its Rainbow Chicken unit to shareholders, including Remgro. Despite these changes, Remgro’s share price has gained less than 2% over the past month.
According to de Vos, cement maker PPC was another detractor. Its share price shed 19% in the first half, costing the Centaur Balanced BCI fund 0.4 percentage points in returns. Nevertheless, he is upbeat on the company.
‘PPC is one that we’re excited about. We think it can perform quite well, especially given the environment we’re busy going into.’
De Vos’ optimism about the firm has to do with the view of improving infrastructure spending in South Africa.
Infrastructure theme
‘One potential big theme that could be evolving is the infrastructure theme,’ de Vos said. ‘We are seeing some evidence with the South African National Roads Agency [Sanral]; they have almost doubled their spending over the past financial year, to R23bn. They also have a significant pipeline of work that we think will come to the market; it’s R130bn of projects.’
Sanral, tasked with maintaining the country’s major roads, is also broadening its scope. ‘What is also quite encouraging is that more and more of the roads under the administration of municipalities are moving toward the Sanral portfolio where maintenance and spending are taking place,’ de Vos said.
In addition to road maintenance and the country’s new power transmission company needing to spend around R300bn to strengthen the electricity grid, the state-owned rail network operated by Transnet is tentatively improving its performance.
‘Transnet [is] also critical for a country like ours that is resource rich – we need the railway networks to export the product out of the country,’ de Vos said.
Whereas Transnet ordered around 100,000 tonnes of ballast and formation material (on top of which the railway line runs) in 2022 from Afrimat, it is estimated that the company will order 500,000 tonnes this year (see graph below).
‘[This] is a step up and clear indication that maintenance is taking place,’ de Vos said.
Similarly, after the decline in monthly tonnage railed in South Africa, it has taken a turn for the positive.
‘More recently, we have seen a slight tick up here,’ de Vos said. ‘There is also new management at Transnet. All the mining companies’ CEOs we speak to who directly engage with Transnet are saying they’re a lot more positive about the new management team.’
The fund had 43.2% exposure to South African equities at the end of June and almost 21% to offshore shares.