We have experienced a risk-on environment since December 2018 – an environment that is characterised by increasing risk appetite leading to the outperformance of riskier assets. The JP Morgan Emerging Market Bond Index, which measures bond performance across emerging markets, has risen by over 10% since the beginning of the year. Domestic equities have delivered a good 12,5% return year to date, outperforming all other local asset classes. This performance has primarily been driven by global monetary policy authorities adopting a more accommodative stance in response to weakening global economic growth. It is therefore pleasing to note that our equity and multi asset funds have delivered returns above their benchmarks since inception.
Regardless of the short-term environment, we think that investing in growth companies is the best way to achieve long term outperformance. We search for high growth, great quality companies that are aggressively re-investing their earnings; and are viewed favourably by investors. Transaction Capital has been a significant contributor to the performance of our funds and continues to be a prominent holding in our portfolios. 50% of the company’s earnings are generated from the financing of minibus taxis – a narrow market segment with little competition. The national minibus taxi fleet comprises of more than 200 000 vehicles with only 70 000 to 80 000 financed, and the remainder being older than nine years. The limited supply of new minibus taxis to the local market exacerbates the under-capitalisation and ageing of the national fleet. This has resulted in long-term demand exceeding supply. Therefore, we expect Transaction Capital to have a superior run-road for sustainable earnings growth relative to other financials, over the long term.
Investing in any company, whether through a value or growth philosophy, is not without risk. Macro risks are often difficult to anticipate. Recently, the risk of a full-blow trade war between the US and China has increased. This has the potential to dampen market sentiment because of the subsequent negative impact that it could have on global economic growth. We think it is important to build investment portfolios that are well-diversified to mitigate any macro or stock specific shocks, that may arise un-expectedly. Therefore, regardless of the policy uncertainty that prevails, we will continue to manage our portfolios in a risk-controlled manner to ensure that we deliver on our investment objectives.
Lima Mbeu Investment Managers (Pty) Ltd is an authorised financial services provider in terms of section 8 of the Financial Advisory and Intermediary Act, 2002, FSP number 49018, Registration No 2017/399814/07. This document is for information purposes only. Past performance is not indicative of future performance. The information contained herein is derived from sources which are believed to be reliable. Any opinion expressed herein is based on the presenter’s current analysis and is subject to change. This presentation does not constitute an offer to sell or a solicitation to buy any security. Lima Mbeu has a conflict of interest policy which outlines how conflicts of interest are managed. This policy, as well as additional information about Lima Mbeu’s products, is readily available upon request or on our website: www.limambeu.co.za
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