COUNTERPOINT SCI VALUE FUND

Raging Bull Award for the Best South African Equity General Fund for risk-adjusted performance over five years to December 31, 2022.

CAPE-TOWN -based Counterpoint Asset Management was founded in 2012 and is headed by Paul Stewart. It manages 15 unit trust funds under the Sanlam Collective Investments licence.

The Counterpoint SCI Value Fund, which invests in shares listed on the JSE, outperformed its peers and its benchmark, the FTSE/JSE All Share Total Return Index, over five-years to the end of 2022, delivering an annualised return of 14.18% over five years, according to ProfileData. This was well above the benchmark, which delivered 8%.

Personal Finance asked fund manager Piet Viljoen about how the fund is managed and the reasons behind its outstanding riskadjusted performance.

Can you outline the investment philosophy/strategy of the Value Fund?

The fund employs a strict value philosophy. Our interpretation of value means only buying shares that are trading below their intrinsic value, with a comfortable margin of safety. This strategy often requires

investors to be patient and unmoved by short-term news but has historically delivered exceptional outcomes for those able to stay committed to their investment strategies.

In managing the fund, we employ a sensible risk management process which focuses on assessing business risk, market risk and applying sound diversification principles. The fund invests in listed equities as well as assets with equity-like returns, but they must be listed in South Africa. We believe investors can and should make their own decisions as to what proportion of their assets should be invested in South Africa.

The year 2022 was one most investment managers would prefer to forget. How did you navigate the volatility?

We do not regard volatility as risk. Volatility is an opportunity to either acquire cheap assets when downside volatility provides such an opportunity or sell expensive assets when upside volatility provides an opportunity. So, the fund stuck with its process, and came out the other side in good shape.

Over the past few years, which counters have specifically stood out for you as being undervalued by the markets?

Good quality (that is, not all) small caps in South Africa have been, and continue to be particularly undervalued. I would regard some of the most undervalued assets as shares in the following companies: Astoria, Bell, Fairvest, Lewis, Metrofile, Sabvest and Telkom. These are all either good businesses, or less good businesses with valuable assets. But they are being ignored by the market due to their small size.

How are you positioning the fund going ahead, taking into account ongoing worries about inflation, higher interest rates, and a possible global recession?

The fund buys businesses, not pieces of paper. It is not the fund managers job to worry about such macro variables. It is the job of the management of the companies in which the fund buys shares to worry about how they deal with those variables over time – both positive and negative. In turn, the fund manager’s job is to make sure the fund pays a reasonable price for the cashflows the business will generate over time, considering – among other things – the track record of the management team of the business in dealing with both external factors as well as external.

In taking account of the poor – and deteriorating – infrastructure which our incapable state provides the economy of South Africa, in exchange for an increasing tax burden, we have increased the discount rate and revised downwards expected future cash flows to arrive at the present values of businesses in which we choose to invest. Even accounting for these two (negative) changes leaves a number of undervalued small-cap shares from which the fund has built a diversified portfolio that has more than acceptable future expected rates of return embedded in the current price.

Brian Pyle, chief investment officer and executive director at Counterpoint Asset Management, receives the trophy from Personal Finance editor Martin Hesse

Photo: Ian Landsberg