Momentum Securities’ International portfolio outshines peers
Since it was launched on 1 June 2016, the Momentum Securities’ International Portfolio has returned 70%, a full 20% above the benchmark’s 50% return on a cumulative basis. This translates into an annual return of more than 13% compared to the benchmark’s 9.5% (end August 2020).
Year-to-date performance is well ahead of the benchmark too at 6.4% versus 4.1%, although our highly defensive cash position has held back returns against peers.
Over three and four years, the portfolio ranks in the first quartile compared to peers with annualised returns in excess of 17% over both periods. Over four years, the fund is one of the top 5 performers in its peer group.
This is according to Werner Burger, Equity Analyst and Portfolio Manager at Momentum Asset Management who says that the fund’s appeal has increased as local investors look for increased access to global markets against a difficult local backdrop. “The SA Equity market has under-performed relative to the US Equity market over the past decade or so. Various factors have contributed to the US Equity outperformance including the very strong growth of the mega-cap US listed technology stocks. US Corporate tax cuts by the Trump administration as well as large scale share buy-backs have also contributed to the relative outperformance. During the same period SA entered a low growth, low confidence cycle of under-investment caused by the politically volatile and uncertain environment. As a result of the local environment, we’ve seen the number of stocks listed on the JSE nearly half since its peak in 2001. The opportunity set for local stock investors has reduced due to mergers, management buyouts and a lack of new listings. SA investors have realized how important it is to diversify their portfolios by investing in offshore markets.”
According to Burger, the international portfolio is a high conviction portfolio made up of 20 – 25 stocks on average. “It aims to maximise risk-adjusted returns by actively investing in global listed equities. The fund is typically for investors who are comfortable taking on a high degree of risk. Potential investors should be cognizant of the fact that share prices can fluctuate significantly based on investment cycles and should therefore be prepared to invest for the medium to long term.”
Speaking about the investment team’s stock picking philosophy, Burger explained that the fund invests in companies with strong balance sheets, high cash conversion and good capital allocation track records: “Our objective is to generate benchmark beating, risk-adjusted returns over time.”
Interestingly, the highly concentrated portfolio’s top five holdings account for nearly 30% of the total portfolio. “Another large proportion is invested in US dollar cash, reflecting our defensive tactical view in the current uncertain environment. Our view is that global equity markets, especially US equities, are priced for perfection relative to the expected earnings outlook. We have identified several international stocks that we would like to add to the fund on any market weakness”.
“The biggest holding in the fund is currently Mastercard as we expect the secular shift toward card-based and electronic payments to continue. Mastercard has a robust balance sheet and we expect the company to continue delivering strong earnings growth over the coming years. We also have a large allocation to gold, which includes the physical metal via ETFs, as well as gold shares. In a world where interest rates in many developed markets are at or are very close to zero percent, we view gold as a defensive alternative to the currencies in these markets.”
Burger also explained how investors interested in the Momentum Securities International Equity portfolio can invest. “You can either invest in the portfolio directly with a minimum investment of $80 000 or through an exchange-traded note (ticker UMMIEA), listed on the JSE, which invests in the portfolio. The minimum investment here is R5000”.