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Avoid meltdowns and stay focused

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Asset manager advises clients to diversify, especially into global tech companies

Cape Town-based Fenestra Asset Management is living up to its reputation of protecting clients from major disasters on the JSE. Notable for being one of the asset managers which kept away from Steinhoff and African Bank, more recently its clients were saved from MTN’s  one-day fall of 23% after Nigerian authorities slapped a second multi billion rand demand on the group. MTN’s share price has halved in five years.

Clients were also saved from Woolworths’ latest disaster with David Jones in Australia, on which it has written down R7bn. As a small and very personal asset manager, with only a few hundred clients, Fenestra does not put its clients into vanilla funds but tailors portfolios according to individual needs. Despite catering for the different requirements of each of its clients, it has managed to avoid tricky pitfalls and calamitous declines across the board, says CEO William Meyer, who founded Fenestra in 1990. “If you look at the litany of Steinhoff, Resilient, Woolworths, Brait and MTN disasters, we have had no exposure to those counters .” Fenestra had no exposure to Capitec or the listed property sector. It had just 2000 shares in Tiger Brands, which has recently fallen sharply, and none in EOH, which has been under immense pressure.

Meyer attributes Fenestra’s ability to avoid these stocks to its investment philosophy. “We are very suspicious, paranoid and focused, with 10 to 12 well researched shares in a portfolio. We are reluctant to invest in banking and mining – which we avoid like the plague – and we invest in companies that do not have big debt and which are easily understood.”

The key is not only to pick winners but to avoid companies with a high probability of a meltdown in price. Top of its investment criteria list is honesty of management, while other criteria are an established profit history, a growing market with growing margins, strong cash generation ability, controllable risks and some blue-sky potential. It is also preferable if the managers are very significant shareholders.

Locally, Fenestra’s portfolios are heavily weighted to Naspers, Long4Life and Bidcorp. The latter two clearly reflect Meyer’s belief in Brian Joffe’s investment strategy. With the exception of a few companies like Naspers, Fenestra largely focuses on mid-cap stocks that show value and have growth potential. These stocks may not have an impact on a large fund manager’s portfolio, but make a big difference in smaller portfolios.

Fenestra stays away from high risk shares, including banks, where Meyer sees increased provisions for bad debts and concern over the recoverability of their loan books, while he “morally and economically ” does not like microlending, which he considers very high risk.

Fenestra’s performance since inception in 1990 has been strong. It has regularly outperformed the ALSI, with one of its biggest successes being limiting the negative return in 2008 to under 15%, when the ALSI dropped 26% after the global financial meltdown.

Choices on the JSE, particularly for tech investment, are limited but offshore the opportunities are endless and Fenestra has taken advantage of them. “We are very excited about our overseas portfolio,” Meyer says, “and we want investors to know you do not need to be megawealthy to have an offshore account. We can do much smaller accounts .” With political uncertainty, exacerbated by land expropriation, he wants to protect clients and ensure they have a portion of their investment overseas.

Offshore portfolios are also unique. “We don’t stick clients into an ETF or bunch of unit trusts. Each client has a specific investment profile and an account is opened in the client’s own name, with funds moving from their own bank account to a bank account in London . Fenestra started buying Apple at $46.83 (it is now trading at $227), and Amazon at $185.68 (now over $2 000). Fenestra’s relatively small size is a major advantage over larger competitors, allowing a focused approach to investment. It has a simple fee structure – a percentage of assets under management and no layers of fees, which eat into returns.

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