This £284m Dublin-domiciled fund has been managed by Kokkie Kooyman since launch in 1999 when he worked at Coronation.
It was moved across with the team to Sanlam Investments in April 2004 into its current guise. Mr Kooyman notes the vehicle’s aim is to outperform the MSCI World Financial index across rolling five-year periods, with a focus on valuation and bottom-up research.
The manager explains the team has built a proprietary system, including more than 400 individual company models linked to its economic database with more than 15 years of company, market and economic data. He says the team uses the data to search for firms that meet a number of criteria, including being undervalued. However, it also requires the company to have good management with a track record of growing shareholder value responsibly and rational capital allocation, ideally in an environment/market “where competition is not severe”.
“The model combined with our experience has in the past enabled us to identify smaller financial services companies with above-average growth potential, which have added considerable alpha to the performance,” Mr Kooyman says. He explains the underlying philosophy of the portfolio has stayed the same, but acknowledges that experience and backtesting has meant “we’ve learnt to focus more on management quality and track record and less on absolute valuation. In other words, we’ll prefer a good company fairly priced to a poor company cheaply priced.”
The fund’s dollar-denominated A-share class sits at a risk-reward level of six out of seven, while the ongoing charge is 1.41 per cent.
The fund has performed well in the longer term, delivering 107.14 per cent for the 10 years to July 8 2015, compared with the IA Global sector average of 91.32 per cent and the MSCI World Financials index’s gain of 27.74 per cent, data from FE Analytics shows.
But in the past 12 months the vehicle has returned 0.67 per cent, falling behind both the sector average of 8.44 per cent and the index’s rise of 11.21 per cent. Mr Kooyman explains: “The fund performed exceptionally well until 2010. But since then the circa 50 per cent investment in emerging markets hurt the fund – specific markets being India, Indonesia, Russia and Georgia. Our research shows [and results confirm] that Indian private sector [banks] and Indonesian banks are generating consistent returns on equity, and markets will rerate them at some stage.
“Russia’s annexation of eastern Ukraine was unforeseen and the significant rouble fall dragged the Georgian lari down with it. In both countries, the banks have come through the ‘storm’ well and are trading at low prices to net asset values.”
The manager points out the volatility is largely due to the unpredictability of emerging market currencies and markets. He emphasises the portfolio’s holdings in these areas have continued to grow their net asset values per share and are paying dividends. “Hence, once this period of turbulence is over these banks should rerate sharply,” he says.
Having taken such a hit it may seem the natural thing to sell the emerging market holdings, but Mr Kooyman notes: “We believe that in the next five years these banks will generate considerably better growth in shareholder value than their US/European peers, and hence should generate good performance for the fund both through this and the eventual rerating.”
Some recent changes to the portfolio in the past six months include reducing its exposure to Indonesia and Turkey “when we foresaw the economic environment deteriorating; the proceeds being invested in India and Brazil where share prices have overreacted”.
Looking ahead the manager points out the investment process focuses on companies that are well managed and mispriced, but he acknowledges that expected reratings can to a certain extent depend on the macro environment. One of the key issues is therefore the impact of the US interest rate on the further rerating of banks in general, but also the rerating of financial companies in emerging markets. He adds: “When sentiment turns positive on emerging markets, excluding China, the fund should outperform strongly again. In the meantime, the US and European portion of the portfolio should prevent it from underperforming too much.”
EXPERT VIEW
Peter Toogood, investment director, The Adviser Centre
Kokkie Kooyman has navigated the boom, the bust and the subsequent recovery in the financials sector in the past decade. He is a pure ‘blood’ stock picker, using an unconstrained and often concentrated approach to stock selection and portfolio construction. Although the fund has a global focus, there has been a fairly consistent bias towards emerging markets, which has proved challenging in recent years. This exposure, combined with the value-biased approach, make the fund most appropriate for more adventurous investors seeking exposure to the financial sector.
