EDITOR'S NOTE
Letter from the editor
ISSUE 4
My word there’s nothing like beating a man when he’s down. One has to
feel a measure of sympathy for the likes of value investor RECM. They are
taking the heat for sticking to their guns through the current investment
cycle – which means through good and bad. We have discussed elsewhere
on Moneyweb how certain asset consultants are encouraging their
retirement fund members to switch out of RECM at the moment. This is
contrary to the sell high, buy low investment advice mantra, and seems
irresponsible in the extreme.
The value investment model only works if you stick through the cycle,
as companies like Allan Gray and Berkshire Hathaway have ably
demonstrated. We are not going to debate the merits of value investing that has been done to death. Instead, in this issue of Investor, columnist
Stuart Theobald suggests that the best strategy for retail investors – if they
want to beat Buffett - is not to follow a value strategy, but to follow a small
cap, high growth strategy.
Fund manager Brendon Hubbard from Clucas Gray definitely believes small
caps are the way to go at the moment. “The valuations within the small
cap universe are becoming particularly cheap relative to the larger cap
stocks,” he says. Read our article on up and coming small cap Interwaste,
which is using science and technology to perform an essential service
more effectively.
But please let me know your thoughts on small caps as an investment
strategy - I’m not sure that everyone will agree with Stuart on this.
What is true in these days of over stretched valuations, is that finding value
stocks is difficult. The FTSE/JSE All Share Index is trading on a PE multiple
of 18, well over its historical average of 15. So what to do? Patrick Cairns
tackles this issue in his article on the irrationality of paying a high PE. Just
because equities are expensive, does not mean that the alternatives are
better, he argues.
The one sector that has run incredibly hard is the listed property sector.
The sector has delivered compound annual growth of just under 21%
since 2005. This has ensured that property unit trusts are an important
consideration when building a balanced portfolio.
In our regular feature on top performing unit trusts we examine the
property sector and look at the best-listed property funds over the last
five years.
But the property sector isn’t looking as rosy as it has over the last decade
and questions are being asked about its future. It lost 10% of its value in
May as bond yields began their ascent. In our ‘talking to the fund managers’
feature we ask what this means for the sector as a whole. Has it hit the wall?
The one company that has definitely not hit the wall is Brait. It sold Pepkor
on a 30x ebitda multiple and in the process generated a fabulous 69% IRR
over four years. The question is, can it repeat this success in its second
phase of growth?
Take time to enjoy this issue of Investor. Let's face it, thinking about how
and where to invest our savings is more pleasurable than digesting the
horrors of Sudanese President al-Bashir and his ilk.
Sasha Planting