Anyone who had invested in the fund at the end of May 2009, would have enjoyed a return of 200%.
The way the fund has been managing its money over the last year gives a picture of where it sees value in the market.
Using data provided by Morningstar, we see it has bought big chunks of Old Mutual, Glencore Xstrata, AVI, Capital One, Barclays Africa and Metair since June 30 2013.
This includes only those shares it did not hold a year ago and now make up more than 2% of its assets. Old Mutual and Glencore Xstrata are now among its top ten holdings.
“The Old Mutual of today looks very different to five years ago,” explains fund manager Shaun le Roux. “The portfolio is much more simple and focused; the balance sheet has been strengthened; exposure to capital-intensive low-return businesses has been greatly reduced; revenue is much more fee-based and we have much greater confidence in management’s ability to allocate capital.”
Taking a big position in Glencore is a clear continuation of PSG’s preference for diversified miners ahead of single-commodity producers.
“Because these businesses have diversified portfolios of predominantly low cost assets, we have a higher degree of confidence that earnings are currently low and should improve in the years ahead.”
Sentiment towards industrial commodity producers is generally low.
“However we take comfort from the evidence of improvements in capital management at both companies, which bodes well for long term shareholder returns,” he says. Also “Glencore has almost no iron ore exposure, which is relevant given the ramp up in supply and unclear long term sustainable prices”.
Capital One is a New York-listed bank holding company that PSG sees as a very attractive, long-term opportunity.
“Most importantly, we can currently buy Capital One at a healthy margin of safety as evidenced by a P/E ratio of 10 times current earnings, which we consider to be below normal levels, and a price to book ratio of 1 times,” he adds.
In the same period, PSG has offloaded big chunks too.
Its big sells have been EOH, Tesco, Walgreen, BP, Berkshire Hathaway and Laboratory Corp of America.
Again, this list shows only those that had a significant weighting and from which it has now sold out. The one exception is EOH’s marginal presence; it was a top 10 holding for the whole of last year, but has now moved into lower-return territory.
The others are all international counters – a reflection of the fund’s need to reduce its international exposure at about 25%, but also due to a re-examination of best offshore opportunities.
The dollar share price of Walgreen, for instance, has more than doubled in two years.
“As a result of the sharp moves in share prices we have reduced or sold many of our holdings in favour of better opportunities, like Capital One,” Le Roux says.
In and out
And two shares the fund has bought into quite heavily over the last year and then sold are Sasol and Spar.
“This is because Sasol trades at a higher than average price on a high level of earnings.”
With Spar: “We have however taken a view that we require a lower entry price given some of the competitive dynamics of the food retail industry.”