30 June 2021
INVESTING
Laurium Capital launches Africa USD Bond Fund BY KIM ZIETSMAN Head: Business Development and Marketing, Laurium Capital
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aurium Capital (Pty) Ltd (Laurium) launched the Laurium Africa USD Bond Prescient Fund in South Africa in December 2019 in the Regional MultiAsset Flexible sector for clients looking for exposure to a pure fixed-income Africa CIS fund to achieve competitive USD yields and diversify their portfolios with their rand investments. Due to the significant interest received from offshore investors and South African investors wishing to access the fund in foreign currency, Laurium has launched its first Irish-domiciled UCITS fund, the Laurium Africa USD Bond Fund, on the Prescient Global Funds ICAV platform.
The Laurium Africa USD Bond Fund is denominated in USD and has received FSCA approval under Section 65 of CISCA. Fund details The Fund invests primarily in USD and EUR denominated fixed-income instruments (eurobonds) issued by African sovereigns, excluding South Africa. A eurobond is a USD-denominated bond issued outside of the United States. There are over 20 African sovereigns issuing eurobonds via the Euroclear markets in Europe. The Fund aims to outperform the Standard Bank Africa Sovereign Eurobond (excl. South Africa) USD Total Return at lower levels of volatility over time. African eurobonds Since 2006, the African sovereign eurobond market has grown significantly to over $150bn and has generated USD annualised returns of 8.9% p.a. The African eurobond market trades around $500m a day. These USD-denominated, sovereign-backed eurobond instruments are settled via the Euroclear markets, carry no local currency risks, nor operational indecencies. Investment approach The fund uses fundamental bottom-
up research, with a valuation bias, to generate a concentrated portfolio with high conviction ideas with a focus on stock picking and risk mitigation. The Fund is invested in a minimum of 75% in eurobonds, typically with a higher weighting over time. It may also invest opportunistically in local currency sovereign and corporate fixed-income securities up to a maximum of 25%. With global investors on the hunt for yield, African eurobonds currently provide access to a liquid asset class that is offering some of the most attractive USD yields globally. The asset class has grown immensely over the past decade, with over $100bn in outstanding issuance across 20 countries in Africa, excluding South Africa. COVID-19 has provided an opportunity that has not happened since the Global Financial Crisis; spreads have widened providing an attractive entry point, similar to what investors are seeing in the global high yield space, but at half the volatility and risk. Laurium has been investing across the African markets since the company was founded in 2008. The team’s deep understanding and research across the African region, where data is scarce, provides a competitive edge by producing insights into the health of the underlying regional economies and their ability to pay
back debt. Laurium has a strong network of contacts, ranging from underlying corporates to African sovereign policy makers. The firm maintains a flexible investment approach, which has proven to be successful when investing in African markets. Laurium has an entrenched partnership with the team at Prescient, one that has led to much growth and success in SA. We are now looking forward to achieving our international ambitions with them, starting with our Africa USD Bond Fund, which we’re very excited about. Reasons to invest in African Fixed Income: 1. Attractive risk-adjusted yields and returns 2. Liquid market, with an investible universe of over $120bn and daily liquidity of around $500m 3. 20 countries issuing eurobonds across Africa with over 83 different issuances 4. Our Fund is currently offering higher yields than Global High Yield and Global EM Fixed Income 5. Actively managed Fund combining majority Africa eurobonds with opportunistic trades 6. Sovereign-backed drives lower default rates than high yield, both historically and going forward.
Are we in a commodities super-cycle? Commodity prices have rallied aggressively in the past six months on prospects for normalising global economic activity. Portfolio manager Mike Townshend responds to suggestions that the world is experiencing a new commodities super-cycle. BY MIKE TOWNSHEND Portfolio Manager, Foord Asset Management
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il, copper, iron ore and platinum have rallied hard since the 2020 pandemic lows. Brent crude surged 150%, both copper and iron ore have more than doubled to new all-time highs and platinum gained 75%. There’s talk in the financial press of a new commodities super-cycle – what’s going on here? Commodity prices usually follow the supply-anddemand pressures of the economic cycle. During booms, commodity demand is fuelled by greater travel, manufacture, infrastructure development and trade. Rising demand drives up prices, incentivising producers to extract more commodities and explore for new reserves. As production rises, supply inevitably exceeds demand and prices eventually fall. Economic cycles repeat themselves every five to seven years, on average. Commodity cycles follow similar patterns. Super-cycles are extended periods of above-trend price gains seen across large parts of the commodities complex. They depend on megatrends that drive demand to new highs and can last for multiple decades. The last super-cycle began in the late 1990s, when rapid
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Chinese urbanisation and infrastructure development combined with global underinvestment in new commodity supply to drive commodity prices to multidecade highs. Producers initially struggled to increase output to match this unprecedented growth in demand, despite the incentive of extraordinarily high prices. The adage that the ‘cure for high prices is high prices’ then proved true as producers invested heavily to increase commodity output. At the same time, Chinese growth slowed from heady double-digit rates to more modest growth rates, with less emphasis on infrastructure development and more focus on the consumer. It may be too early to call, but I don’t believe the current commodity cycle will develop into a super-cycle. Firstly, recent price surges are mostly a recovery from the lows of early 2020 and boosted by the huge fiscal and monetary response to the pandemic. Secondly, what could be the catalyst for multi-decade demand? Chinese growth is slowing, India has a massive
population but does not have the political unity to coordinate sustained infrastructure spend, and the Western world is grappling with ageing populations and overindebtedness. There are no significant supply constraints. Specific commodities could nevertheless experience extended price growth. Demand for metals and materials that support renewable energy and electric vehicles should grow over the next decade. ‘Green metals’ such as copper, cobalt and lithium are probable beneficiaries of the transition to a more carbon-neutral economy. Foord’s portfolios have meaningful investments in the best quality resource shares. However, the cyclicality of earnings streams makes us reticent about being overweight in this sector in the long term. Material investment in diversified miner BHP Group (and to a lesser extent, Anglo American) affords valuable exposure to two of the world’s largest copper mines. Foord’s global funds have direct copper exposure via US miner Freeport-McMoran and leading lithium battery material producer Livent. ABOUT FOORD ASSET MANAGEMENT Foord Asset Management has been successfully growing retirement savings since 1981. The company offers a premium investment management service to long-term investors in retirement funds and unit trust portfolios. A multi-decade track record of successful investing evidences Foord’s ability to consistently deliver superior investment returns for a range of investment strategies. 1. As an independent and owner-managed boutique built on the principles of investment stewardship, we place investors’ interests ahead of our own 2. We construct diversified investment portfolios based on rigorous fundamental research, high conviction ideas and an adaptable, valuedriven investment policy 3. We embrace market volatility as opportunity, not risk. https://foord.co.za/terms-conditions
