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2018Q1 Client Feedback

25 April, 2018 By Courtneycap

Dear Client

“Beware what you wish for you may just get it”

After three years of complaining about lack of volatility and a gentle upward grind of world markets the first quarter of 2018 has delivered volatility in buckets. Traders now find themselves complaining of irrationality, illiquidity and volatility caused by the most innocuous tweets, whispers or possible short selling rumors.

Algorithms, ETFs (exchange traded funds) and quazi-index trackers have created an environment where the majority of fund managers find themselves all long similar themes, the result of this is that when there is a change of trend and panic results everyone rushes for the door together, our mission is to hopefully be the first one to recognize this change and be the first one out or at least reduce the long equity exposure such as to reduce losses.

Time in the market has always been a strong policy of ours but as a small and nimble fund manager we hope to outperform the ‘titanic’ managers over time.

JSE performance

The All-share started 2018 at 52823 points and closed at the end of the quarter at 48794 points, for a loss of 7.6%. Most of this could be ascribed to Naspers which was down 18% and reinforced our view last year that having exposure of over 20% to a share is not only bad asset allocation but is irresponsible. Another bellwether that saw big under-performance was British American Tobacco, a big dividend payer but out of favour due to slow delivery on smokeless alternatives – we preferred to get exposure to BTI via Reinet which trades at a 38% discount to NAV and has 70% of its NAV in BTI and this softened the liability.

What does the future hold?

The Trump rhetoric will continue to spook markets (he has an election to win and so won’t stop the America first narrative till after that), inflation is ticking up as oil continues to be massaged up prior to the listing of the Saudi wealth fund, wage increases due to limited unemployment and lack of qualified workers also is putting pressure on employers. These all point to higher interest rates which in turn could lead to downturn in the economy if raised too quickly. The FED is wary of this scenario and we doubt that they will push the accelerator on this front but then we do have a new fed chair so it’s all guess-work at the moment.

The Cyril euphoria is starting to wane

And South Africans are starting to wonder if anything has actually changed, mining charter about turns, football thugs, land claims and more corruption in the auditor space as well as the PIC backing Sagarmatha are all cause for alarm, we have taken an overweight ZAR hedge stance, this is not only based on an SA view but also on the chance that the carry trade is beginning to unwind as USA increases rates and South Africa has entered a reduced rate environment.

With thanks

We appreciate your continued support and hope to sail through the turbulent waters that we currently face with your NAV intact. I often get what’s app messages from Willem between 2 and 3 am in the morning and can assure our sleep patterns are affected not by a fear of loss (we are confident in our valuation metrics even though the market has a way of making you look a fool) but more by the fact that the current volatility has reinvigorated us to find more opportunities to enhance the returns on the portfolios.

Kind regards

Courtney Capital Team

Filed Under: Client Feedback

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99 11th Str, Parkmore
(011) 244-2060 or 61
(086) 525-2405
 admin@courtneycap

Stellenbosch

Vrede Wines
(079) 507-1231
(079) 507-1231
 nicoc@courtneycap

London

 Chiswick
(011) 083-7898
+44 (771) 347-3983
 arthurb@courtneycap

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