INVESTEC BCI DYNAMIC EQUITY FUND
• Raging Bull Award: Best South African Equity General Fund for Straight Performance over Three Years to December 31, 2023
• Raging Bull Award: Best South African Equity General Fund for Risk-Adjusted Performance over Five Years to December 31, 2023
The Investec BCI Dynamic Equity Fund is one of a suite of domestic and offshore funds offered by Investec Investment Management and administered by Boutique Collective Investments (BCI). It is fully invested in the domestic market with no offshore component (in December its allocation was 93.4% equities, 4.9% listed property and 1.7% cash). Its benchmark is the FTSE/JSE Capped Shareholder Weighted All Share Total Return Index (Swix), which it outperformed over one-, two-, three- and five-year periods and from its inception in November 2015 to the end of 2023.
In December, the fund’s top five holdings were Montauk Renewables, Anglo American, Reunert, Pan African Resources and Hosken Consolidated Investments. Despite the preponderance of resources stocks in the top five, its biggest sector allocation is to financials (25%).
Personal Finance asked portfolio managers Barry Shamley and Peter Vogel about how they manage the fund.
PF: What is the objective of the fund and your investment approach in achieving that objective?
BS & PV: The objective of the Investec BCI Dynamic Equity Fund is to provide investors with capital growth and income over the long term. The fund employs a primarily "bottom-up" investment approach, attempting to identify equities that offer above-average returns. While we invest across the full spectrum of the JSE, we place emphasis on identifying emerging companies. Our focus on the distinct merits of each company often leads to weights that are materially different from our benchmark, the Swix. We have a value bias but are style agnostic and prefer buying companies where there is a large margin of safety in the valuation. We do invest in growth companies, but we are price sensitive (we do not like to pay up for growth). We invest across the market-cap spectrum, with the flexibility to invest in smaller companies that are generally under researched and often undervalued.
PF: To what do you attribute your fund's excellent performance over the last five years?
BS & PV: The fund has a very high active share and a strong focus on valuation. Our flexibility in terms of adjusting our small, medium, and large capitalisation exposure and our nimble approach have both added value over the long term. A key contributor to our performance has been our ability to identify some of South Africa’s top capital allocators. Names that spring to mind include Copelyn, Mouton and Seabrooke.
Our highly experienced equity research team with over 200 years of experience provides a robust platform from which we can navigate the ever-changing South African investment landscape.
PF: Which counters have stood out for the fund in the past few years?
BS & PV: Our top contributor to the overall return over the past few years was Montauk Renewables. This is a R15bn JSE and Nasdaq-listed company that produces renewable natural gas (from landfill sites in the US). It operates within a complicated legal framework. We believe the complexity of this framework precluded many local fund managers from owning or even considering it. While we reduced our holding on valuation concerns, we still recognise a long runway of growth for this business as they develop and expand their manure digester business. Other notable contributors were Naspers and, in the precious metals space, Pan African Resources, Royal Bafokeng Platinum, Impala and Gold Fields. Several investment holding companies contributed substantially to our gains, notably HCI and Sabvest, led by two of South Africa’s top capital allocators, Johnny Copelyn and Chris Seabrooke. Lastly, we benefited from a number of our companies being taken private at premiums to market. These include Distell and Long4life.
PF: How are you positioning the fund going forward, considering adverse local economic conditions, though a possible easing of inflation and interest rates?
BS & PV: We are coming out of a perfect storm for SA businesses. Stubbornly high inflation, extraordinarily high interest rates and poor operational performance at Eskom and Transnet have all taken their toll on growth and confidence. This is this sort of environment that as contrarians gets us quite excited about pure play SA companies which are trading at extremely depressed valuations. While the headwinds above may impact another reporting period, our research team have concluded that based on past cycles, SA Inc tends to outperform in the period post the interest rate cycle peak.
PERSONAL FINANCE