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PERFORMANCE OVER 10 YEARS TO 30 SEPTEMBER, 2021
After a long period of stagnation, mirroring the JSE as a whole, there has been a surge of growth in the smaller to mid-cap sector of the market. Can you explain this?
The surge in growth you talk of is mainly a base effect. Small- and mid-cap shares were hit hard in the months after Covid was discovered (March and April 2020), only to rebound very strongly after that. In general, South African companies were very well managed during the pandemic, with many emerging stronger.
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To what do you attribute your fund's excellent performance over the past year, and which stocks have stood out for you?
The good performance in the past year is partly the base effect I spoke of above, but also due to holding quality companies which have managed to come out of this crisis very well.
Stocks that have stood out include:
• Mpact. It used the extreme weakness in its share price to buy back 15% of its own shares at bargain levels, thereby enhancing shareholder value.
• Invicta. Despite lacklustre revenue growth, Invicta has managed to cut costs aggressively such that it has delivered very strong bottom line earnings.
In addition, the company has generated significant cash flows from both asset sales and working capital management such that its balance sheet stresses have gone away.
What challenges and opportunities do you see ahead for smaller local companies, and how are you positioning the fund accordingly?
The biggest challenge for local companies is the weak South African economy and the lack of any meaningful GDP growth. Companies that cannot gain market share will struggle going forward. In addition, the South African consumer is generally not in good shape, which will make it difficult for consumerfacing companies to prosper.
We are positioning the fund predominantly in companies we think can grow, despite the weak economy. These are typically good quality, strong businesses that have proven themselves over the years.
Examples of these include Spar, Advtech, Distell, RMI, Metair and Dischem.
