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PSG Angles and Perspectives: Q4 2018

23 January 2019

PSG Angles and Perspectives: Q4 2018

The quarterly publication of PSG Asset Management which contains regular communications from our fund managers and about our funds.

In this edition, we detail how concerns about current risks in the US credit market have prompted us to enhance our analyses of company balance sheets, and how this ties into our assessments of company management. We also consider the dramatic decline in the price of British American Tobacco and whether this adequately accounts for the range of possible future outcomes for the company. Finally, we address some common investor concerns and set out why we believe that South African currently offers a notable investment opportunity.

Introduction

2018 was a tough year for most investors
After a ‘Ramaphoric’ start, the JSE experienced its worst year since the global financial crisis: the FTSE/JSE All Share Index ended the year 9% down in rand terms. The rand, having rallied to R11.50 against the US dollar, was trading at R14.35 at year end. Generally, developed markets also disappointed. While the US largely managed to buck this trend, ongoing uncertainty about trade relations with China and a series of interest rate hikes by the US Federal Reserve spurred market jitters. ... Read more

Understanding the risks of debt: a balance sheet review

Credit market concerns have triggered a review of our balance sheet work
Global credit markets, especially in the US, appear to be late cycle. While corporate bond spreads are currently narrow (indicating a benign environment with abundant liquidity), we are worried we may face a nasty credit squeeze in the US. These concerns have triggered a review of our balance sheet work: we have revisited all our geared buy list stocks and refined our process when evaluating potential new positions. ... Read more

2018 reminded us that investing is hard
British American Tobacco – a case study of crowding and risk perception

Despite general perception, British American Tobacco has proven to be anything but ‘low risk’
There is a catalogue of well-owned stocks on the JSE that declined by more than 50% in 2018, including the much-loved British American Tobacco. With an outstanding track record, its popularity can easily be understood. But this probably also resulted in investor complacency. Now, the share is cheap is relative to history, but does this adequately account for the wide range of possible future outcomes for the company? ... Read more

Debt structure: a window into management’s true motivation

Company management are fellow custodians of our clients’ capital
We value a stock based on the cash flows of the underlying business. This assumes that, as minority shareholders, our clients will receive their fair slice of future profits. For this crucial assumption to hold true, management need to be good stewards of shareholders’ capital. In addition, we invest in equities with a long time horizon. Management therefore need to make decisions in the best long-term interests of the business, for their timeframe to be aligned with our approach. ... Read more

Investor concerns about South Africa: our views

Recent client interactions have revealed several common concerns
With the JSE down significantly in 2018, many investors have been left disillusioned. To make matters worse, uncertainty about South Africa’s political and economic future has heightened perceived investment risk. Is it time to throw in the towel? We share our views on some of the most common client questions and concerns. ... Read more

Portfolio Holdings as at 31 December 2018

  • Click here to view the portfolio holdings of the funds as at 30 September 2018

Performance to 31 December 2018

  • Click here to view the performance of the funds to 30 September 2018

Unit trust summary

  • Click here to view the unit trust summary of the funds as at 30 September 2018

PSG Angles and Perspectives: Q4 2018 (pdf)

  • Click here to view the full document in PDF

Archive of previous editions

  • Click here to view previous editions

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