By Jacqueline Mackenzie
Coronation Fund Managers expects the recent market volatility to continue for the foreseeable future, but the worst could be over for the local financial and industrial counters.
Coronation CEO Hugo Nelson told I-Net Bridge that the market has been a two tier market in the past six months. If one looks at the Alsis, then there does not seem to be a problem because the resources have been strong, but the rest of the market has been weak, he explained.
"The market has been thin, with more decliners than advancers. You really needed to be in four stocks – Anglos, Billiton, Sasol and MTN," he added.
"The financials and industrials (findis) have been in a bit of bear market, but in many cases we have seen the worst in these components," he added.
"We are looking at a reasonable outlook going forward for the findis – we are not negative about domestic shares. From this point on we are quite positive and are more concerned about valuation levels in the resources sector. Our big focus is valuation – there's the story and then there's the price. For domestic industrials and financials - a lot of the worst has occurred," he said.
Coronation Fund Managers on Tuesday reported a 23% decline in diluted headline earnings per share to 24 cents for the six months ended March from 31.1 cents a year. Basic HEPS declined to 26.6 cents from 34.7 cents before.
Coronation cautioned in January that the slowdown in the group's revenue growth and the dividend tax charge accounted for in this interim period would result in earnings being lower than the previous corresponding period.
Revenue for the first half, comprising annual recurring fees and performance fees, remained flat at 421 million rand from a previous 423 million rand, despite a 64% fall in performance fees, anticipated in volatile market conditions.
Assets under management grew by a "pleasing" 11% to 136 billion rand, the group said. "A significant proportion of this growth is attributable to our growth in the fixed interest market; further entrenching Coronation as a manager across all asset classes," Nelson said.
"The six months under review was characterised by negative global market sentiment which extended to global emerging markets, triggering an indiscriminate sell-off in the South African financial and industrial sector. We produced a satisfactory set of interim results notwithstanding the challenges imposed in this market turmoil," he said.
Nelson says although market volatility undoubtedly will have an impact on Coronation's profitability over the next six months, he is confident that the group has the right strategy, business model and investment philosophy focused on delivering long-term investment returns for its clients.
"Our business has a diversified revenue stream, a strong cash flow and continues to be singularly focused on fund management."
The group has recently launched four new additions to its international product offering – a latitude fund, a world equity fund, a world bond fund and a cash fund. It also recently launched two emerging market funds - Coronation Global Emerging Markets Flexible Fund and the Coronation Global Emerging Markets Opportunities Fund. It also has an Africa fund launching in the second half of the calendar year, Nelson said.
Nelson said that although it is still very early days for the two emerging market funds – launched in December and February respectively - the performance of the funds had been pleasing despite being launched when stock markets were under pressure. They are quite conservatively positioned, he said.
"We aren't aggressive trying to sell these funds as it's a new initiative and a new team and the team has to build a credible track record. It hasn't been something we have sought to sell aggressively into out client base."
The main focus has been to get them staffed up, get the processes in place and get products launched, he added.
Looking ahead to the second half of the year, Nelson says performance is always a challenge.
"Performance is always a challenge, but part of our business is investment performance, so we don't feel uncomfortable with challenges. What is most important is that we continue to grow our business. As we get foreign exchange relaxation, it is a priority to have a credible international offering.
"Looking to the second half those are our key thoughts - the markets are always challenging," he concluded.