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Don’t have all your eggs in the SA basket

15 August 2018

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by David Gibb, Fund Manager

South Africa is the country that I love. It is also where my wife and I have chosen to raise our young family. It offers a wonderful quality of life and an opportunity to contribute meaningfully to society in a way which enhances our lives. However, it would be naïve not to heed the enormous challenges South Africa faces and, for this reason, we believe that a large share of our savings should be invested offshore.

This view may seem inconsistent when you consider that since 1900, and even since 2000, the Johannesburg Stock Exchange has been amongst the best-performing major stock markets in the world. Like Australia, abundant natural resources account for much of this superior long-term performance while, in recent years Naspers, with its significant weighting in the main index, has played a stellar role in terms of performance. Where to from here? Mining is no longer the force it once was, due to major government policy missteps and the geological obstacle of narrow vein deposits in deepening platinum and gold mines. And, Naspers is already some 20% of the JSE All Share Index.

So, when Anchor Capital was established around six years ago, offshore investing was offered from the start to encourage our clients to diversify some of their savings away from South Africa. I specifically joined the company to run our first offshore unit trust – the Anchor Worldwide Flexible Fund – and to help build capability in our newly formed offshore investment team. And what an exciting (and at times, gruelling) journey it has been!

The Anchor Worldwide Flexible Fund has since its inception amassed a largely timeless portfolio of some of the most impressive companies in the world. Our approach to investing has always been to find durable companies that are underappreciated by markets, and to back these businesses over the long term. Our investments include, amongst others, Alphabet, JP Morgan, US Bancorp, Unilever, Yum Brands, Schibsted, MasterCard, Royal Dutch Shell, Admiral, Synchrony Financial, Rolls-Royce and City Lodge – all great companies that were underappreciated when we bought them. There have been mistakes, including investing in Tesco and General Electric, and we have also erred by deciding against investing in subsequent high flyers. However, overall, we have always been conscious every step of the way of trying not to lose money, investing in companies that serve a beneficial role in society, and strongly backing our best ideas.

After five years, the Anchor Worldwide Flexible Fund has performed well, solidly beating the JSE FTSE All Share Index and the stated benchmark of local inflation plus 4% (i.e. SA CPI plus 4% p.a.). Our clients should be happy. Nevertheless, we are not satisfied yet as we diligently continue to build the capabilities to become a world-class asset manager over the next few years.

As Satya Nadella, the CEO of Microsoft, says in his recent book ‘Hit Refresh’, successful organisations need concepts, competence and culture. Our team at Anchor Capital has plenty of investment ideas (i.e. concepts). If anything, we have become far more adept at saying NO to more of them. Competence has been carefully crafted by assembling an excellent team of people. This work is never really done. Our clients will be interested to hear that we have recently established a global tech unit, a crucial competence when choosing investments in an increasingly digital world. And culture, is what we pride ourselves on.

So, having established the bedrock for offshore investing at Anchor Capital over the past five years, we look forward to further honing our skills and doing our utmost to deliver a world-class investment performance over the next five years.

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