Blue Chip Issue 89

INVESTMENT | Economy
BLUE
CHIP
Thinking slow but acting fast when opportunity knocks
Growth of R100 since inception*
R
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7
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1
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Coronation Global Houseview Strategy
Commodity cycle
GFC
Benchmark**
Covid
Polycrisis
Sep-93 Sep-98 Sep-03 Sep-08 Sep-13 Sep-18 Sep-23
R6 437,54
R4 637,44
with conviction when the best investment
opportunities became available.
Sticking to what works
As simple and obvious as our actions may look
with the benefit of hindsight, the reality at the
time was that we first had to endure painful
periods of short-term underperformance
while being as affected as everyone else by the
prevailing news flow and headlines.
However, a solid philosophy and trusted
process, executed by an experienced team,
enabled us to look beyond those moments of
market panic and uncertainty. Having stuck
with these principles over three decades stood
us in good stead and we believe they will
continue to contribute to us replicating our
track record into the future.
Coronation is an authorised financial services provider.
Performance is gross of fees; * Since inception – October 1993; **Benchmark – Median of peer group
Source: Coronation, as at end-September 2023
The commodity boom of 2007
The commodity bust of 2015
The Global Financial Crisis,
2008
The Covid pandemic, 2020
The polycrisis of 2022
How did we respond?
With commodity prices flying in response to China’s infrastructure rollout, our long-term work
on commodity prices indicated normal prices were well below the spot. We significantly reduced
portfolio exposure in response, which contributed to outperformance in subsequent years.
When resource prices were in the proverbial hole following a slowdown in Chinese demand and
the shale energy boom in the US, our long-term work indicated a strong disconnect between price
and value, and we upweighted our commodities exposure in response. While this call contributed
to underperformance initially, it added to significant alpha in 2016.
After markets endured one of the most severe bear markets in history, our long-term work on equity
valuations indicated a large margin of safety, giving us the conviction to take our portfolios’ equity
exposure towards a full weighting by early 2009.
While our portfolios were not well-positioned going into this unprecedented event (fairly full equity
weighting and low exposure to the safe-haven assets of gold and USD cash), we leveraged our
research process and spoke to as many experts as possible to understand how the pandemic
would evolve and the impact of lockdowns on consumer behaviour and company results. We
used this knowledge to update and refresh our models across the investment universe to refresh
our valuation estimates. Cross-collaboration within the investment team unearthed the attractive
opportunity presented by select equities, giving us the conviction to significantly increase equity
exposure across our portfolios by December 2020.
A big derating in global assets in response to higher inflation and interest rates coincided with the
relaxation of Regulation 28’s offshore limits. Our long-term work on valuations allowed us to step
into the opportunity presented by offshore assets meaningfully and rapidly – moving our Balanced
Plus Fund’s offshore allocation from around 20% to 45%.
Coronation Balanced Plus is the retail equivalent of the institutional Coronation Global Houseview Strategy illustrated in the visual. Coronation Balanced Plus was launched in April 1996. The Balanced
Plus Fund should be considered a medium- to long-term investment. The value of units may go down as well as up, and therefore Coronation does not make any guarantees with respect to the protection
of capital or returns. Past performance is not necessarily an indication of future performance. Unit trusts are traded at ruling prices and can engage in borrowing and scrip lending. The fund is mandated
to invest up to 45% of its portfolio into foreign securities and may as a result be exposed to macroeconomic, settlement, political, tax, reporting or illiquidity risk factors that may be different to similar
investments in the South African markets. Fluctuations or movements in exchange rates may cause the value of underlying investments to go up or down. Coronation Management Company (RF) (Pty)
Ltd is a Collective Investment Schemes Manager approved by the Financial Sector Conduct Authority in terms of the Collective Investment Schemes Control Act.
www.bluechipdigital.co.za
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