This morning I attended the Coronation Global Markets & Funds Update.

The presenters were Gavin Joubert and Neil Padoa.

Gavin is head of Coronation’s Global Emerging Markets investment unit. Gavin has 18 years’ experience as an investment analyst and portfolio manager. He joined Coronation in 1999 and currently co-manages the Global Emerging Markets Equity strategy.

The Coronation International Investment Team

The team  is made up of 3 divisions (Global Emerging Markets, Global Developed Equity and Global Frontiers) and comprises 21 analysts / portfolio managers. Gavin heads up the former, Louis Stassen the Developed team and Peter Leger the Frontiers team.

The Global Emerging Markets team manages about $5.7bn – the majority of which is institutional mandates, with just about $260m in the SA-domiciled unit trusts.

GEM attributions for the year ending 30 June 2017.

Stocks which helped performance over the last year included JD.com, Briliance China Auto, X5 Retail Group, Melco Resorts & Entertainment and Yum Brands.

Stocks which detracted from performance included Liberty Lilac Group, Alibaba, Global Mediacom, Tencent and Samsung.

Key fund characteristics (60% of fund)
• China internet: 14.7% of fund in search, portals, gaming and travel providers
Includes indirect exposure through Naspers (Tencent is ±70% of our Naspers FV)
• Car companies: 7.5% of fund, skewed toward premium vehicles
• Brazil education: 7.3% of fund (Kroton and Estacio)
• China e-Commerce: 7.0% of fund comprising JD.com and Alibaba (held directly and through Yahoo)
• Russian food retail: 6.8% of fund comprising #1, #2 and #4 food retailers in the country
• Indian private sector financial: 6.3% of fund (banks and mortgage house)
• Global brewers: 5.6% of fund (AB InBev & Heineken)
• Latam financials: 4.0% of fund comprising banks and insurers in Brazil, Peru and Mexico

Gavin shared with us some interesting insights into Coronation’s views on China e-commerce and some Indian financials.

Neil is a portfolio manager and head of global developed markets research. He joined Coronation in May 2012 and has 9 years’ investment experience. Neil is co-manager of the Global Managed and Global Equity strategies.

Macro backdrop

Neil kicked off with a quick look at the macro backdrop in global markets, highlighting how strongly global market returns have been over the last year, and how poorly global bonds have done.

In line with this, Neil noted how well  the Coronation Global Managed Fund did over the last year (its best 12-months ever) driven by strong global equity markets, good stock selection, and an asset allocation to property and credit at the expense of government bonds being helpful.

Asset Class Overview: Current Views

  • Equity still the asset class of choice given lack of alternatives. Combination of relatively high valuation levels and macro uncertainty has increased risk of capital loss. At the same time cost of protection is at all time lows. We have both lowered the equity exposure as well as increased protection structures. Current equity allocations at lowest levels since inception.
  • Huge distortion in government bonds all around world! Recent correction in bond markets only the tip of the iceberg. Normalisation of short term rates and withdrawal of QE programs will continue to lead to significant yield curve shifts, lots of money could still be lost!
  • Still holding some credit, but have reduced substantially, all interest rate risk hedged out
  • Still positive about listed property, but only in selected pockets

Equity positioning: where they are finding value

  • The disruptive power of the internet is transforming many long-established business models (Alpphabet, Amazon, Facebook)
  • Alternative asset managers (KKR, Pershing Square, Blackstone)
  • Cyclicals over defensives (Severe sector rotation post Trump election created attractive opportunities in consumer staples
  • Healthcare (CVS Health, Walgreens)
  • Select China internet names (JD.com, Baidu and Naspers)

Disruptive platforms

Neil shared some rather fascinating insights into their views of disruptive platforms and how companies like Facebook, Google and Amazon are shaking up in this space.

Amazon’s 2014 letter to shareholders outlined Jeff Bezos’ views on what makes for a great business:

“A dreamy business offering has at least four characteristics:
• Customers love it
• It can grow to very large size
• It has strong returns on capital
• It is durable in time, with the potential to endure for decades
When you find one of these, don’t just swipe right, get married

Disclaimer: The information provided is not intended to address the circumstances of any particular individual or entity and should not be considered to be advice in any way. No person should act upon this information without first obtaining professional advice.

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