INVESTEC BCI DYNAMIC EQUITY FUND

Raging Bull Award for the Best South African General Equity Fund for straight performance over three years to December 31, 2022

INVESTEC’S Dynamic Equity Fund, marketed under a Boutique Collective Investments licence, was launched in 2015. Almost entirely invested in South African listed shares (including listed property shares), it delivered an annualised 25.6% a year over the three-year period under review. In contrast, the FTSE/JSE All Share Index (total return) returned 12.72%, the FTSE/JSE Mid/SmallCap Index 9.5%, and the fund’s benchmark, the FTSE/JSE Capped Shareholder Weighted Index (Swix) 10.1%.

Portfolio manager Barry Shamley responded to the following questions from Personal Finance:

Please state the objectives of the fund and describe your investment approach.

BS: The objective of the Investec BCI Dynamic Equity Fund is to provide investors with capital growth and income over the long term. The fund employs a primarily "bottom-up" investment approach, attempting to identify equities that offer above-average returns.

While we invest across the full spectrum of the JSE, we place emphasis on identifying emerging companies. Our disciplined approach may result in us being under or overweight in terms of certain sectors over time and therefore our performance will not always be correlated with our benchmark, the Capped Swix. We have a value bias but are style agnostic, and prefer buying companies where there is a large margin of safety in the valuation. We do invest in growth companies, but we are price sensitive (we do not like to pay up for growth).

We invest across the market-cap spectrum, with the flexibility to invest in smaller companies that are generally under researched and often undervalued.

To what do you attribute the fund's excellent performance over the past three years?

There was a significant rerating of smaller and medium-sized companies from extremely depressed valuations coupled with a rebound in earnings. We also benefited (as a country and a shareholder) from strong commodity prices over the past few years.

This trickled down into the broader economy as tax collections increased and our currency benefited from an improved trade balance.

Which counters have stood out for the fund during that period?

Our top contributor to the overall return was Montauk Renewables. This is a R27bn JSE and Nasdaq-listed company that produces renewable natural gas (from landfill sites in the US). It operates within a complicated legal framework. I believe the complexity of this framework precluded many local fund managers from owning or even considering it.

While we have reduced our holding on valuation concerns we still recognise a long runway of growth for this business as they develop and expand their manure digester business. Other notable contributors were in the resources and precious metals space, including Royal Bafokeng Platinum, Pan African Resources, Gold Fields and Afrimat. Several investment holdings contributed substantially to our gains, notably HCI and Sabvest, led by two of South Africa’s top capital allocators, Johnny Copelyn and Chris Seabrooke. Lastly we benefited from a number of our companies being taken private at premiums to market.

How are you positioning the fund going forward, considering worries about the South African economy, global inflation, and high interest rates?

In the short term we expect inflation will move in the right direction as global supply chains normalise and demand subsides on the back of higher rates. While this gives central banks breathing space, we are concerned that corporate profitability will be under pressure.

We are therefore cautious in the short term. In the medium and longer term, though, we are quite excited about the prospect of an extended positive cycle for emerging markets and particularly commodity exporters, who will benefit from the energy transition. Over the past two years we have experienced a positive rerating of smaller and medium-sized companies and a derating of some of the larger companies, which we avoided in the past on valuation purposes. As a result of this our exposure to larger companies, such as Naspers and Richemont, has increased.

Barry Shamley (left) and Peter Vogel, portfolio managers at Investec Wealth and Investment, collect the trophy from Personal Finance editor Martin Hesse.

Photo: Ian Landsberg