Coronation Fund Managers and Kagiso Asset Management are increasing their exposure to the platinum sector, despite the protracted labour strike that saw the JSE platinum index fall as much as 6.7 percent in the three months to March.
Coronation, which increased its holding of Northam Platinum in February, told investors during the independent investment ideas forum that it continued to favour platinum over gold producers.
The asset manager said its preference remained with the low-cost producers, Impala Platinum and Northam.
Coronation added that its exposure to platinum was not portfolio-defining – it was keeping the weighting of platinum minimal on its portfolios.
“We would have built a bigger position in [the platinum] stocks in our portfolios if we had a higher conviction on the attractiveness of current valuation levels, which for example are influenced by uncertainty about demand levels,” one of the group’s asset managers said.
South Africa produces more than 70 percent of the world’s platinum supply, and Coronation said local producers therefore had the potential to be price makers, giving asset managers some comfort in supporting exposure to the sector.
Kagiso has a significant holding in platinum stocks largely through its investments in Lonmin and Anglo American Platinum.
The firm’s investment analyst, Dirk van Vlaanderen, said Kagiso remained happy with its position in the majors.
“There is a tangible, long-term demand for platinum that is expected to increase over time,” he said.
“South Africa produces around two-thirds of the world’s platinum production and the recent strikes are substantially mopping up excess above-ground stocks, which ultimately we believe is positive for the price of platinum and consequently our local platinum producers.”
The asset managers said the next 10 years would require more of a balancing act from fund managers in terms of the asset classes they invested in, as equity investments’ returns were not going to be as high as they had been in the past decade.
Gold was one asset class that Coronation did not have confidence in, while Kagiso would continue looking at the normalised valuation of companies and emerging trends that could affect different sectors in the global space.
Coronation said it had no exposure to gold mining companies because the earnings-forecasting risk for that sector was notoriously high.
It has not had any exposure to gold in South Africa for more than six years. But it sometimes uses physical gold as a currency diversifier for its offshore portfolios.
“There are other quality asset managers in South Africa who have had gold exposure and done phenomenally well. But we don’t like gold because we can’t pin-point earnings,” Coronation said.
But Coronation also has exposure to a troubled stock in the form of African Bank Investments Limited (Abil). The fund manager holds more than 20 percent of Abil’s stocks, but said these translated into small exposures at portfolio level.
“Our aggressive equity fund, Coronation Top20, for example, has a 1.5 percent weighting in Abil. A high conviction view would lead to a weighting of closer to 10 percent in this fund,” it said.
But it justified its position, saying it believed Abil was trading significantly below its long-term fair value as a result of recent losses that temporarily affected market sentiment.