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Bringing up an Equity child

18 July 2018

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by Peter Armitage, Chief Executive Officer and Fund Manager of the Anchor BCI Equity Fund

Just as the journey of parenting human beings has been, it’s been a thrilling, challenging and fulfilling experience directing the growth of one of my non-human children – the Anchor BCI Equity Fund. Five years into this journey, the fund is the top-performing fund* since inception, in a crowded category. As all parents love to do, I would like to take some time to highlight the personality traits of this non-human child.

To the outside world a fund is primarily a factsheet and a monthly performance number, but that only tells a small part of the overall story. To me, and the rest of my family at Anchor Capital, the fund is a living, breathing entity with beautiful intricacies of its own. It’s something we develop, guide and nurture; based on research, instinct, process and experience.

At birth, there is a great deal of anxiety and uncertainty. The entity is small, fragile and yet to form an identity of its own – even if there are ideas in mind of what its ideal persona would be. Mistakes in the formative years can have major implications and ramifications for the growth path and the willingness of external people to provide support. It’s wholly dependent on its parents and starts to learn how to walk and talk. Our fund is making strides and its vocabulary is ever-growing. We managed to navigate this part of the journey well, avoiding most pitfalls that would stunt its growth.

The environment for growth was excellent in the early years and the fund flourished. And, where there were bad influences, we managed to steer the fund away from these (mining shares and MTN were bullies in the playground then) and it outperformed its peers, showing early signs of being a star. Famous Brands, Mediclinic, Capitec and PSG were the friends that helped stimulate growth for an extended period. We could not have been prouder of its emergence and performance.

As the fund kept maturing, the environment changed. It will continue to do so. What is important is the fund’s reaction and adaptation to this change. Encouraged not to blindly follow peers, in early 2016 the fund avoided what seemed like a big risk – betting on beleaguered mining companies. The sharp bounce of these counters was missed, and fund peers had a growth spurt that was not shared by our progeny. Lesson learnt – if there is material optionality in a big counter or sector, take some exposure unless there is very high conviction not to do so.

By now the fund had firmly established its identity and importantly confirmed the guiding principles by which it would live its life and how it would choose its friends. Among these are the importance placed on quality management, strong returns and cash flows, along with a reasonable price. A key attraction is operational momentum and the return earned on the next R100 invested.

Good progress followed, with one really bad date (with Steinhoff) providing some more lessons but almost everyone has had a date with this deception and fortunately, we ended the date early in the evening.
So, 2018 commenced with a far more mature and experienced organism, confident in the game plan to follow well into adulthood. This year has seen meaningful outperformance of its peers and, at the five-year mark, the fund was dux of the school, and a big school at that. The goal for the next five years is to repeat this success and to not only be dux, but also the most improved player; being always adaptable to ever-changing market conditions.

The fund is now well out of adolescence and is part of the working fraternity, seeking to add value and bring tremendous energy and innovation to a future career that has bright prospects. The personality of the fund is entrepreneurial (within defined risk parameters), adaptable, confident and hard-working. Investors buy a fund that is still young and small enough to be nimble and make good ideas count. The opportunity to add value is bigger than for its older peers, who are materially constrained to a small selection of really big shares.

If the fund was a person, it would buy at Shoprite and Mr Price, stay in a City Lodge, insure with Outsurance, have a Rain data card (African Rainbow Capital), use the internet for a plethora of services (Naspers, Facebook), and use All Gold tomato sauce (Tiger Brands). Our fund has exposure to all of these brands or services and, as it continues to mature, will endeavour to provide dependable, strong returns and a consistently secure performance to those investing in its future.

* The Anchor BCI Equity Fund is the top performing fund over four and five years (at 30 June 2018) in the South African General Equity category, according to MoneyMate. Past performance is not necessarily an indication of future performance.

Disclaimer

Boutique Collective Investments (RF) (Pty) Ltd (“BCI”) is a registered Manager of the Boutique Collective Investments Scheme, approved in terms of the Collective Investments Schemes Control Act, No 45 of 2002 and is a full member of the Association for Savings and Investment SA. 

Collective Investment Schemes in securities are generally medium to long term investments. The value of participatory interests may go up or down and past performance is not necessarily an indication of future performance.  The Manager does not guarantee the capital or the return of a portfolio. Collective Investments are traded at ruling prices and can engage in borrowing and scrip lending.  A schedule of fees, charges and maximum commissions is available on request.  BCI reserves the right to close the portfolio to new investors and reopen certain portfolios from time to time in order to manage them more efficiently.  Additional information, including application forms, annual or quarterly reports can be obtained from BCI, free of charge.

Boutique Collective Investments (RF) Pty Ltd retains full legal responsibility for the third party named portfolio.

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