The Fenestra team are very proud of an article that appeared in the Financial Mail this month. The article covers Fenestra’s successes and its investment strategy. For the benefit of Meander Chronicle readers we have decided to print the article this month.
Corporate scandals like Steinhoff and Tongaat-Hulett have done irreparable harm to South Africa’s reputation as an investment destination, but while many sophisticated investors were duped into hanging on beyond the downturn, neither of these companies should have presented a compelling investment case.
This is according to Fenestra Asset Management CEO William Meyer, who says that he avoided Tongaat-Hulett for a start because the company could never be in control of its own destiny. “There were lots of reasons to avoid Tongaat-Hulett, like a volatile sugar price and multiple sources of sugar. Why get involved in a business where lines on its income statement are beyond control of management?”
Meyer says even if Tongaat’s leadership hadn’t suffered from corporate greed, even the best leadership team would struggle to create value in a business based on an agricultural commodity. “To make things worse, it all goes back to the fundamental principle of management being honest and aligned with the interests of shareholders and stakeholders. If they aren’t, you’re going to get fleeced.”
Meyer points to investors not only holding onto Steinhoff shares as the share price imploded but buying in even as the price slid. “Half of the damage could have been avoided if investors had sold out when the price began to collapse. The historical cost comes down to the disposition effect, where investors frequently sell great shares and keep bad ones. Investors who are reluctant to part with shares that are collapsing need to remember that what you paid for a share has nothing to do with its future value.”
Cutting your losses is a good habit to learn. “Work out what went wrong and move on. There are many opportunities out there. Losses can lead to highly emotional responses that prevent the investor from selling long after they should have let go.”
Meyer says investors should be able to have confidence that they are investing in a company for the right reasons and should compile a focused portfolio of reliable management teams.
“We not only avoided the disasters but also the underperformers like Aspen, BAT, Brait, Sasol and Woolworths. We have not held a single share of these companies in our clients’ individual portfolios, which is why our clients are now in the sweet spot, outstripping the market and our competitors by a healthy margin,” he says.
Meyer believes it is critical to have exposure to offshore equities to track global growth themes that are not available on the JSE. Again, his focus is on quality management teams. Even as US tech stocks face challenges in dealing with complicated US-China trade relations, for example, there are still opportunities.
“Apple CEO Tim Cook is said to be the greatest logistics supply-side manager in the world. It’s hard to imagine they don’t have a plan B and C. The share price is telling you that too – it continues to move up. It’s really important for South African investors to have international equity exposure to take advantage of these growth stories.
Meyer also likes Booking Holdings, which he says is led by an “incredible” manager in Glen Fogel. Booking has six primary brands in Booking.com, KAYAK, Priceline, Agoda, rentalcars.com and Open Table. “The internet has really opened up travel for millions of people. Earnings per share nearly doubled from $42.65 in 2016 to $83.26 in 2018. Booking.com had more than $92.7-billion in gross bookings in 2018. This kind of growth story has not been available to domestic investors in South Africa.”
Then, Meyer says, there are markets that are under-analysed like Australia and New Zealand, in which Fenestra has special expertise. “They’re not big on investors’ radar, but by focusing your attention you will find some gems. That’s why Fenestra has done so well – we’re very concentrated. The more investment decisions you make, the more likely you are to make a mistake.”
Fenestra, which has been managing investments since 1990, offers a personal touch, which Meyer says reflects the company’s investment ethos. “We know our clients very well and we care deeply about their portfolio performance. They all have my personal cell phone number, so it’s a very personal, focused relationship.”
Meyer says if investors are not happy with their current portfolios and would like a second opinion, they should contact Fenestra for a free review of their portfolio. Interested investors can email Fenestra at firstname.lastname@example.org or can call Fenestra’s head office in Cape Town to arrange a personal and confidential consultation.
Corporate report compiled by
Brendan Peacock – Financial Mail
If you are not happy with your portfolio performance or would like a second opinion,
please do not hesitate to contact Fenestra for a free review of your portfolio.