Sasfin manager seeks out undervalued businesses
Sasfin Value Fund
The Raging Bull Award for the Best Broad-based Domestic Equity Fund – the top-performing fund on straight performance in the domestic equity general, value and growth sub-categories over three years to December 31, 2012
Buying typically undervalued companies with good prospects and sticking with them even when they return to fair value was the winning strategy of stockbroker David Shapiro, who manages Sasfin’s Value Fund.
With a return of 22.01 percent a year over the three years to the end of December last year (according to ProfileData), the Value Fund out-performed all other funds that can invest across the JSE.
Shapiro says the Sasfin fund has no restrictions on how it invests but will typically look for undervalued shares with a track record of good earnings and the ability to maintain those earnings.
Unlike other managers who invest on value, if a share’s price returns to fair value, Shapiro will not automatically sell it. If the share still has some momentum and continues to deliver growing earnings and dividends, Shapiro holds on to it.
For this reason, he continues to hold the likes of Shoprite and Mr Price, which many equity managers are ditching because these shares have reached prices beyond what they regard as fair value.
Shapiro says he does not invest in a large number of stocks – he prefers to invest in between 20 and 25 stocks and to put four to five percent of the fund in each.
When he considers new stocks for the fund, Shapiro makes a call on whether the share warrants replacing the worst performer in the fund.
He also looks for companies that have a good cash flow and in whose management he has faith.
While all shares must be those of top companies, the fund does not invest only in the top 40 shares or in small-cap shares. Shapiro invests only in liquid shares he can buy and sell quickly, and small caps typically do not fit the bill.
The Value Fund was launched in 2005 as the Sasfin 2010 Fund. It aimed to benefit from investing in companies that would prosper from government policies – spending on infrastructure, poverty reduction and disease eradication, and the development of the country as a gateway to Africa.
Shapiro still tends to favour local companies that will benefit from expanding into Africa and generally avoids large dual-listed industrial and resource companies, such as SABMiller, Richemont, BHP Billiton and even Bidvest, where a growing part of the group’s income is coming from Europe and Asia-Pacific region.
The fund had a bad 2008 and 2009 but, amid the investor doom and gloom, it was able to buy companies with excellent financial statements at good value, Shapiro says. These companies have delivered great returns and dividends for the fund.
Shapiro says he has shares in Oceana, the fishing group, which is paying a divided of 4.5 percent; Kumba, the iron ore supplier, which is paying a dividend of 5.5 percent; Sasol, the energy and chemical company, with a dividend of 4.5 percent; and Imperial, the car rental and diversified industrial group, with a dividend of 4.7 percent.
The fund also owns some shares that have lower dividend yields, such as chemical company Omnia, technology company Pinnacle and media group Naspers, because these shares still have some momentum. (Naspers was bought some time back because of plans to expand its DStv offering into Africa.)
Looking ahead, Shapiro is upbeat. He says it may be that investors are enjoying the last part of the bull market that started in 2009, but a lot of investor money still needs to find its way back into equity markets. This reinvestment is likely to drive up share prices.
Shapiro says while Europe is still “a basket case”, the United States and China are likely to do better than expected, which will have positive implications for the local market.