DOMESTIC EQUITIES: SASFIN
Learning from SA’s star performer
asfin’s David Shapiro notched up a magnificent performance during the past three years and deservedly won top honours in the latest Raging Bull Awards. The Sasfin Value Fund (renamed the Sasfin MET Equity Fund), managed by David, was the top performer in the ASISA Domestic Equity – General, Value and Growth sectors. With an annualised return of 22.01% over the three years to December last year, it outperformed all other general domestic equity unit trusts. Shapiro attributes his success to keeping his investing simple, applying the right principles, being able to identify opportunities and maintaining strict discipline. “No, it’s not a question of having the right tricks,” he says. “I think that too many investors over-complicate matters for themselves by trying to understand every rand earned by a company, looking at elaborate charts and models, and/ or allowing defence mechanisms to take over completely. “Over the years, I have drifted to Buffet-type investing without becoming rigidly obsessed with it. Buffett often ignores important industries and becomes too narrowly focused on strategies that may have been relevant a long time ago. You’ve got to adapt to change.” Shapiro nevertheless recognises that the genius of Buffett is also to be boring. “He (Buffett) has preached the virtues of dull but steady businesses for a generation, with, for example, his stake in Coca-Cola fizzing on. This arguably makes little sense David Shapiro
to investors brought up to think that an efficient market rewards those who take more risk.” In terms of themes, Shapiro believes it’s important to establish who’s got the money and who’s spending it. For example, he places a high premium on leading emerging markets because they tend to be both spending and exporting nations. Global sectors that appeal to him include material companies, especially iron ore and copper; oil; branded goods such as Coca-Cola, Yum (owns the Kentucky Fried Chicken brand) and Colgate; and luxury goods companies such as Richemont and BMW. By the same token, he maintains that North America deserves considerable attention. “We are starting to look at the US as a growth area. More money will be spent on infrastructure; it will be selfsufficient in energy by 2020; natural gas is cheap; manufacturing promises to become more competitive again; and its trade balance is rapidly improving.” Shapiro places considerable emphasis on seeking out companies with all the right criteria, especially those with top rate, inspirational managers. These, in his book, include the likes of Brian Joffe, Stephen Saad and Koos Bekker. “I prefer big companies that have exposure across the world, and I have more faith in them than I have in governments. I would rather invest in a leading multinational than have to decide whether my money should go to Obama or Zuma.” Shapiro models his portfolios along the lines
DAVID SHAPIRO’S GUIDING PRINCIPLES
Here are several of David Shapiro’s guiding principles that you can’t ignore: • Maintain a relatively simple approach to investing. Beware of engaging in derivatives and other exotic trading practices; • Take heed of the ways of maestros such as Warren Buffett and his disciples such as the Brandes group; • Place a high premium on important market themes; • Seek under-valued, solid businesses with excellent management and good earnings records. • Watch the market closely for clues. You need to measure a clue with the fundamentals, and if a share runs up, you need to ask what the market knows and you don’t know. Often the market gives clues that fundamental analysis doesn’t give. • Ensure that you adapt to changing markets such as globalization and the opening up of capital markets. The markets of today are very different to what they were 10, 20 or 30 years ago; • Maintain a lean portfolio. Limit your portfolio to between 20 and 25 stocks and place between 4% and 6% in each. • Look to stable high dividend yielding stocks as a major underpin. However, this doesn’t preclude promising low dividend stocks such as chemical company Omnia, technology company Pinnacle and media group Naspers which still have some momentum; • If you are heavily invested in an excellent stock and it keeps proving itself, then it’s a good idea to keep topping up your investment; • Don’t automatically sell shares that have produced fair value. They may or may not include the likes of Shoprite and Mr Price; • Avoid small and mid caps that may throw up superb short-term performance and then become value traps.
of a “champion’s league”. In managing his clients’ portfolios, he incorporates the best companies from around the world. “I keep it lean without adding to the total number of companies, and if I add one, one has to fall away. The worth of a new one has to be greater than the worth of my worst one. And I don’t do small caps because you can’t be sure of easily getting in and out of them.” ■ FINFUND 28 MARCH 2013 21