MAZI CAPITAL PRIME EQUITY FUND
Raging Bull Award for the Best South African Equity General Fund on a risk-adjusted basis over five years to the end of December 2015
A thorough share selection process that considers a wider-than-average list of companies, coupled with sticking to past investment decisions, are two prime reasons behind Mazi Capital Prime Equity Fund receiving its award. The fund achieved a rating of five PlexCrowns, which means it produced the best consistent return without undue risk.
In addition to being ranked first on a risk-adjusted basis, the fund was ranked first on straight performance over the five years to the end of December 2015, with a return of 19.21 percent a year, on average. The FTSE/JSE All Share Index, returned 12.96 percent over the five years, while the average annual return for all general equity funds was 10.6 percent.
What makes the fund’s out-performance even more remarkable is that it is only five years old. It was launched in August 2010 by the chief investment officer and fund manager of Mazi Capital, Malungelo Zilimbola.
Mazi Capital was launched in 2006 as part of a joint venture with Visio Capital, but the two companies parted ways in 2013. Zilimbola cut his teeth in asset management by working at Investec Asset Management and then at RMB, after graduating from UCT with a BSc and a BCom (Hons) in Finance.
The objective of the Mazi Capital Prime Equity Fund is to maximise long-term capital growth for investors and to out-perform the FTSE/JSE Shareholder Weighted All Share Index (Swix) over time, without taking on more risk than the general equity market. This is achieved by targeting sound investments that offer investors good price appreciation and long-term, sustainable cash flow.
According to Zilimbola, the investment process prescribes an intensive search for companies which have high-quality management and governance, a sustainable business model, balance-sheet strength and clarity of cash generation, and which are defensive with downside protection, whose shares are at a price that is reasonable relative to fundamental value.
Asked whether he followed investment guru Warren Buffett’s philosophy of unearthing deeply discounted stocks and waiting for them to “bloom”, Zilimbola says he simply believes in buying shares in line with the strategy “buy low and sell high”. “However, we always look for a catalyst that will unlock the value in a company,” he says.
The current top three shares in the fund include Naspers (12.6 percent of the portfolio), MTN (5.5 percent) and Old Mutual (5.2 percent). A positive feature of these companies is that they have rand-hedge qualities.
Asked about its exposure to MTN, considering the company’s Nigerian fine, Zilimbola says Mazi has been negative on MTN for quite some time and is currently underweight in the share. “Our concerns included the weak Nigerian economy on the back of the falling oil price,” he says.
Shares that have contributed most to out-performance in recent years include Cashbuild, New Europe Properties, Mpact and the PSG Group. Under-performers include Royal Bafokeng Platinum (RBP) and FirstRand.
“RBP is a great company. It is the most profitable platinum company in South Africa. It has great management, good labour relations, high production growth and above-average profit margins and returns. Unfortunately, it was negatively impacted by the severe plunge in commodity prices.
“And FirstRand is a superbly managed bank, with superior returns. However, it was affected by South Africa’s sovereign credit rating downgrade concerns, as well as capital flight that ensued on the back of the [United States Federal Reserve Bank’s] interest rate hiking cycle,” Zilimbola says.
The portfolio is a high-conviction one with the top 10 shares making up 51 percent. “But every position we put in the fund must add to its performance,” Zilimbola says.
Like other local equity general funds, the Mazi fund is permitted to invest 25 percent of its portfolio offshore and a further five percent in Africa. However, the fund is fully invested in local investments. The reason is that one of the fund’s core tenets is that Mazi’s researchers and analysts must be able to get close to the management of the companies selected for investment.
“We are an active fund manager and we do not have the relationships in place to do this for offshore companies. And many South African listed companies, such as SAB, Aspen, Steinhoff, to mention a few, have wide-ranging exposure to overseas countries, through which we can get geographic diversification,” Zilimbola says.
Commenting on how the equity fund fared in the recent “three finance ministers in one week” turbulence, Zilimbola says it was well positioned for the December developments, because it had good rand-hedge exposure.
He says Mazi Capital has started 2016 with a preference for defensive companies with rand-hedge qualities. “We continue to avoid commodity stocks in light of the weak Chinese economy,” he says.