We are a stock-picking investment house. We employ a common-sense; valuation-driven process that identifies mispriced assets trading at discounts or premiums to their long-term business values. These business values are determined using a longer-term outlook and assumptions that ignore “noise” and other influences that we consider temporary in nature.
We are bottom-up investors. We do not make investment decisions based on our view of how the economic environment will perform over the short term. We endeavour to understand the macro environment in which our companies are operating only because this information is critical in understanding how ‘normal’ a company’s current operating performance is.
We do not consider ourselves to be either value or growth investors. In this small market one cannot afford to narrow one’s investment universe. In our experience, the market misprices growth shares as often as it misprices asset-rich, low-growth shares. Over the years growth shares like Pick n Pay and BHP Billiton have contributed as significantly to our performance as value shares like Telkom and Venfin.
We are a research-driven organisation. In a small market we deploy significant resources in an attempt to do original research and better understand our companies. This process has enabled us over the years to consistently construct concentrated portfolios that reflect the high- conviction views of our investment team.
This investment philosophy is deeply ingrained in the Namibia Asset Management and Coronation culture. Although we do not offer ‘silos’ with different investment philosophies, we do recognise that clients need more than a ‘one-size fits all’ investment product. For this reason we embrace product innovation that aligns our best investment view with our clients’ objectives. All products will reflect the same basic investment views ideas and leverage off our investment process.
The role of property in a diversified, balanced portfolio is well documented. Whilst the overall size of the listed property market is not big, the situation has slowly been changing as more capacity through on-selling and consolidation by a number of listed property vehicles have taken place. We do not invest in direct property, but do invest in these listed vehicles where liquidity and opportunities present itself.
We have a dedicated property portfolio manager and unit trust portfolio, which means we are ideally placed to add value by including this asset class in our balanced portfolios.
Given the size and liquidity constraints alluded to, we will however never have big allocations to this asset class. We do use this asset as an alternative to the bond market when valuations permit, whilst we also actively use Liberty International as a diversifier and good rand hedge alternative
We use a number of proprietary models for portfolio construction; these are used to determine our projected total returns of all assets within our investable universe (based on our forecasts of projected yield curve movements as well as credit spreads). Based on our total return forecasts, we run optimisation based on our specified portfolio constraints in order to determine our model portfolio.
In addition, for bonds we utilise our proprietary models to determine risk adjusted returns for each of the assets in our universe (such as the Sharpe ratio, for information regarding the excess return per unit of risk which is particularly relevant for selecting corporate bonds for inclusion in the portfolio) and consider these within the risk constraints of the larger portfolio.
Our fixed interest philosophy is based on the belief that the southern African market places too much emphasis is placed on only making duration calls, and not enough on an integrated framework in which value can be added to clients’ portfolios using other tools of fixed interest portfolio management.
We are active managers, like many others, but the difference lies in applying active management across different strategies. This means that we actively manage across the following areas:
> Market Risk - Duration exposure
> Yield Curve Risk - Curve positioning
> Credit Risk - Non-government exposure
We therefore aim to extract as much value as possible from decisions taken in these areas by actively combining both a top-down and a bottom up approach to our bond and cash portfolio construction.
We believe one of our core strengths and competitive advantages lies in the understanding of credit risk and its growing applicability in the southern African market by performing extensive research into credit risk cycles as well as new developments and opportunities within the credit market. The development of credit as an asset class is still in a relatively early stage in the southern African market. This provides fund managers with the opportunity to invest in new and innovative structures that provide an enhanced yield, to reward an investor for additional work performed to understand their nature (such as the use of securitisation, which has only recently become a significant feature within the southern African credit markets).
Another of our strengths lies in the application of derivatives as overlays on portfolios, where permitted, in order to adjust portfolio risk profiles to suit both our views and to fit our clients’ risk profiles where derivative use is mandated. We do not gear portfolios using derivatives, unless a client mandate specifically requires this.
Although we focus on the major interest rate cycles, we recognise the value potential of shorter-term trading opportunities and hence aim to capture both the primary and the secondary trends in the bond and money markets.
Utilisation of Derivative Instruments
We transact in derivative instruments only when we deem it necessary to the efficient risk management of a portfolio. We use derivatives to enhance asset allocation strategies across different asset classes, to hedge portfolios in volatile market conditions, as an insurance mechanism against specific events and for the purpose of yield enhancement. Derivative instruments are not used in price speculation, and never where gearing is involved. All derivative transactions require multi-level authorization. Derivative instruments are not used in the unit trust fund.
The international portion of the portfolio is invested in the Coronation International product range. The international operation, established in 1996, comprises a direct asset management company, Coronation International, as well as a multi-manager operation of alternative style investments, Coronation Investment Holdings. Internationally, Coronation’s multi-manager business is ranked as one of the top 15 funds of hedge funds managers in operation in Europe, with their flagship Global Equity Fund being one of the largest in terms of asset size, and with one of the longest track records relative to its peer group.
