In this episode of the Denker Capital podcast, Nigel Barnes speaks with Barry de Kock and Kokkie Kooyman from our global financials team. Fresh from a research trip to Mexico, Brazil and Argentina, Barry shares insights into the fast-growing fintech sector, the opportunities among the region’s banks, and what it all means for investors. The discussion then broadens to the positioning of the Denker Global Financial Fund, how the team is thinking about shifting from past winners into new areas of value, and their outlook for the months ahead.
Nigel Barnes:
Thank you for joining us for another Denker Capital podcast. I’m joined by Barry and Kokkie from the financials team at Denker Capital. Hello, guys. Barry, you’ve just been to Latin America. How was the trip? Where did you go? Who did you see? Give us a bit of feedback.
Barry de Kock:
Morning, Nigel. Yes, great trip. So, for the first time in two years – I didn’t go last year – I made a little bit of a journey across to Mexico, Brazil and Argentina. The intention of the trip was to catch up with some of the holdings, some of the businesses that we own in the region, but also see a host of companies we follow closely, look for new investments, and also meet with a number of private companies, just to kind of get a sense, a bit of a temperature check on what’s happening in the financial services sector in that region.
It was a decent trip, very fruitful, I would say. The fintech scene in Latin America is absolutely thriving. There are two companies that have been probably the best examples of fintech disruption globally, and that’s Nubank, which we own in the fund, and the other one is Mercado Libre – Nubank based in Brazil, mainly, and Mercado Libre based in Argentina.
Both of those businesses have scaled significantly over the last decade. They’re more or less a decade old. And they’ve taken massive market share from incumbents, as well as grown their books by serving the unbanked and underbanked populations in the regions. One of the key takeaways for me is that the growth potential of the region is still massive. Across those countries, particularly Mexico and Argentina, you have very big populations of under- or unbanked people. So there’s a huge opportunity there. The populations are relatively young, and the markets are big. So, I think those businesses are certainly powering ahead, and I think they’ll continue to do so for a while.
The other interesting takeaway I took from the trip is that one of the side-effects or knock-on effects of these fintechs disrupting the local incumbents is that it’s forced them to reinvest heavily. And over the last 10 years or so, we are now starting to see who’s harvesting the benefits of reinvestment over the time and who’s done it cleverly and who hasn’t. So, you’re starting to see some gaps between some of the incumbents who traditionally have enjoyed very strong market positions.
One example, there’s another business we own in the fund called Itaú. It’s a Brazilian bank, it’s probably the leading quality player in Brazil, who have seen a massive improvement in ROE (return on equity) over the last 10 years, while at the same time investing heavily. They expect efficiency in the bank to continue to improve in the years to come, meaning that returns should stay high. So, that was very good to see.
And on the other side of the spectrum, you have a company like Banco do Brasil, who have potentially been a little bit slow to reinvest and are dealing with a whole host of other problems. And I think the divergence between the two companies is becoming wider, and it’s going to become more difficult for the follower to catch the leader, if that makes sense.
Nigel Barnes:
Yes, okay. In a second we’re going to talk a little bit about positioning and what you guys are doing across the broader fund. But, Barry, in terms of the Latin America position, how big is that position at the moment?
Barry de Kock:
It’s pretty small. It’s 2.5%. The valuations in the region are very attractive, but, of course, it’s Latin America, it’s emerging markets. There’s always going to be an element of political or macro volatility. So, as excited as I am – coming back from the region – it is something that we will manage with position size. So, we’re unlikely to go too big in a position like that, because we are very cognisant of the risks that come with that.
Kokkie Kooyman:
Nigel, if I can come in here, it’s interesting… I think my own first visit to Brazil was in 1995, and I’m giving my age away here, and I saw Itaú and Bradesco. There were a lot of other banks then at that stage. And so, what’s important is that we’ve been following the big banks, they were then smaller, obviously, for 25-plus years. And what is fascinating to me, just chatting to Barry now on his return, is you can just see the cultural differences between banks, how that grows and stays. Itaú was always the best bank, and they’re still the best bank. So, that whole philosophy of reinvesting, a bit like Capitec in South Africa.
The culture at management level of ‘how we do things’ and ‘how we keep growing’, versus, let’s say, Banco do Brasil. That’s always the one that has bad debts, always. It always looks cheap, and you’re tempted to buy some because it’s cheap, but if you look back 10 years later, you always did better just staying with the very good quality companies. And that’s why these trips are so worthwhile, just to touch base again and to make sure of what we see in the companies, that it’s still there and it doesn’t change.
Nigel Barnes:
Brilliant. Thanks, Kokkie. Thanks, Barry.
I was looking this morning at the figures to the end of July 2025, and the data is obviously important. The Denker Global Financial Fund’s A class for the year to date is up 25.5% in US dollars, so a cracking year. That is almost double MSCI World, at 10.9%. And your benchmark (the MSCI World Financials Index) is somewhere in the region of 17.5%. So, guys, it’s been a good year so far.
Putting myself in the mind of investors – it makes me think: “Okay, now what happens?” We’ve still got a few more months to go in the year. There’s quite a bit of uncertainty around in global markets. So, I’m interested today to really portray a message to listeners about what you’re doing now. So, Kokkie, just set the scene for us as to what you’re thinking at the moment, and then we can dive a little bit deeper.
Kokkie Kooyman:
Look, we are very pleased about the performance, but also the last five years have been astonishing. And investors must bear in mind that the low point was after COVID. So, you’re coming off a very low base. And I’m very glad to say that we were urging investors to invest and stay invested, because the valuations were just so attractive. So, you’re quite right. Especially European banks and the US investment banks have rallied hard. Most still show some upside, but obviously not the same you had a year ago, and two years ago.
Barclays is still trading at below book value, below the capital that’s invested there (I think it’s 0.8). And what is fascinating in these last 10 years, management teams globally have really been forced to focus on cost control, better net interest margins, lower bad debts – so all of them are targeting much higher future return on capital than they’ve had in the last 15 years.
Now, that’s management team forecasts – and that’s why we go on these visits to test that. But what we’ve gradually been doing, we’re, as good investors, sceptical. So we’re not going to pay up for the promises. JP Morgan was our largest position in the fund, a 5% plus position for, I think, three years, and we’ve gradually been whittling that down. With JP Morgan, the valuation is the highest it’s been in 15 years. There are others – Barclays, HSBC, ABN AMR still show upside – but the ones that have rallied very hard and starting to look dear. We’ve started moving into basically three areas that have lagged. And Barry can also talk a bit about them.
The one we’ve covered already: emerging markets. We’ve gradually moved into the emerging market banks that have lagged, and specifically were hit hard again by Trump’s tariffs – slapping 50% tariffs on Brazil, slapping 50% on India. The Indian macro outlook has dimmed a bit, not much, because India’s an unbelievable country with a high growth rate. But the banks, like Shriram Transport Finance, down 17% this year. So that’s where we add. Selling some JP Morgan, going into some Shriram, going to more Itaú, adding a bit to Nubank. So our emerging market position has been increasing.
Similarly, within the US, we’ve shifted from the investment banks and also from the European banks a bit into the US regional banks. And by the way, those regional banks are now, these days, multistate, actually national banks. So they’re still referred to as regional banks. But they have lagged the large banks. US Bancorp is now our largest holding in the fund, 5%-plus. It’s actually up. Last year, the price was flat. Even this year, it’s still lagged. So it’s really dependent on interest rates. So, as interest rates come down, we expect those banks to start rallying.
And then the last one, maybe Barry can just update us there, is property and casualty insurers. Investors who’ve been with us for many years will know that that it was big in the fund, it did very well, and we reduced that a bit, and we’re starting to look at that again. Barry?
Barry de Kock:
Yes. The property and casualty (or P&C) insurance sector, as Kokkie says, has always been a fairly sizeable portion of the fund. Over the last year or year to date it has lagged broader markets. Firstly, that’s something we would expect when markets are very strong. It tends to be less correlated to the economic or market cycle, and more correlated typically to what happens with the weather. If there’s large hurricanes or big floods, then these guys tend to struggle, and if not, they tend to do well.
So, year to date, two examples will put it into perspective (two big holdings we have). The one is called Chubb, and the other is called Arch Capital Group. With both of those businesses, the stock prices year to date are essentially flat, while over the first six months of the year, they’ve grown their book value, which is a good proxy for the underlying value of the business, or the intrinsic value of the business, by 11% and 12%, respectively, for Arch and for Chubb. So, the businesses are still growing, their returns are still high, and we think that’s likely to continue.
One of the reasons that the market has also rotated a little bit out of them into the other more rate-sensitive names is around concerns of margin compression. So, as Kokkie said, they’ve had a few very good years, given that the insurance pricing cycle has been very strong, which means their margins have been very strong, and it is going to decelerate. That’s natural. It can’t continue to improve forever. But we think the market is a little bit overly pessimistic on how much it will decelerate. Plus, we still have high interest rates globally by historical standards, which supports the investment income of these businesses. So, we’re still pretty confident on the long-term outlook for them. And because they’ve lagged, we’re adding to that.
Kokkie Kooyman:
I think what hopefully comes through to listeners and investors is that we continuously have a lot of factors we look at, but the factors we focus on, firstly, is the quality of the business, shown in its track record. And then, obviously, each business operates within a geopolitical element. Argentina is high risk at the moment. Really excited as what could be happening there, but we start really slow and just watch it. And you’re always concerned about the geopolitical thing. And then the valuation. And so, the lower the valuation, the more attractive it becomes, if the quality is there and the geopolitical risk is there. But, also important is the position sizing in the fund.
So, that’s why Brazil and Mexico at the moment are only 2.5%, because of the uncertainties surrounding there. But as we get more certainty, we can increase that.
Another thing, very important thing, is our ability, because of our 20-25 years of doing this, to quickly identify future winners. Ben went to Canada earlier in the year and found one or two really exciting smaller financials in Canada. And the one has just reported (yesterday), very, very good results. And so, we keep on looking for those smaller players, take a small stake, continuously visit management.
So, if you look over the last 20 years, at what the fund has done – it’s had a good year but I don’t lose a moment’s sleep about the next five to 10 years. Maybe the next three months you have a good run, maybe you have a bit of a pullback in the market. But by the end of next year, we’ll be very happy with the ability of the companies to keep generating growth in their shareholder value.
Nigel Barnes:
Yes. That was going to be my final question, guys. Outlook? If I’m looking at my investment statement now and I’m seeing 25-odd percent in dollars, where do you think you’ll finish the year? What’s your outlook over the course of the next 12 months?
Kokkie Kooyman:
So, the big uncertainty at the moment is basically two things.
The one is short term. Will the Fed start cutting interest rates? When short-term interest rates come down, it is generally good for asset prices. And, by the way, if it doesn’t cut because growth remains too strong, then that’s good news because then your US growth is strong, and US growth is surprisingly positively the whole time.
The other concern of the markets, and us as well, is long bond rates. So, your 10- and 30-year yields are climbing because markets are very concerned about the debt levels of Japan, of the UK, of France, even of the US. So, in the US, Trump’s actions with tariffs does bring in extra tax revenue. It does create jobs. And so, there’s a lot of uncertainty. So, we’d expect the market, when you’ve had such a run, maybe you should have a bit of a correction, which might be healthy.
But by end of the year, we definitely expect to be higher. By end of next year, in line with the past, potentially 10%-12% every year, and then every third year you have a very good year – maybe we have another 30-percenter. So, with the valuations and the visits we’re doing to the companies, how strong they are, I’d be surprised if we didn’t have another good 12 months.
Nigel Barnes:
Okay. But your core message, Kokkie, is that you’re taking a little bit off the table with some of those winners and investing in some new opportunities where you see some value, but obviously with that quality focus and everything, as always. Okay, great. Thank you, guys. We’re also going to put this in an article, which is going to be posted on the Denker website.
Thank you, guys, as always, for your insight.
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Annualised performance as at 31 August 2025
Source: Morningstar. Returns for periods shorter than one year are cumulative. Past performance is not necessarily a guide to future performance, and that the value of investments/units/unit trusts may go down as well as up. Returns are in USD terms and are net of the A class fees of 1.25%. Inception date: 5 October 2004. The highest annual return in the last 10 years was 29.7% and the lowest was -17.2%.
Disclaimer:
This information does not constitute financial advice as contemplated in terms of the South African Financial Advisory and Intermediary Services Act of 2002 (FAIS Act). Use or rely on this information at your own risk. Independent professional financial advice should always be sought before making an investment decision as not all investments are suitable for all investors.
The Denker Global Financial Fund is a sub-fund of Sanlam Universal Funds Plc, a company incorporated with limited liability as an open-ended umbrella investment company with variable capital and segregated liability between sub-funds under the laws of Ireland and authorised by the Central Bank. The Manager of the fund is Sanlam Asset Management (Ireland) Limited (Beech House, Beech Hill Road, Dublin 4, Ireland, Tel + 353 1 205 3510, Fax + 353 1 205 3521) which is authorised by the Central Bank of Ireland, as a UCITS Management Company, and an Alternative Investment Fund Manager, and licensed as a Financial Service Provider in terms of Section 8 of the FAIS Act. Sanlam Collective Investments (RF) (Pty) Ltd is the South African Representative Office for these funds. Deemed authorised and regulated by the Financial Conduct Authority. The nature and extent of consumer protections may differ from those for firms based in the UK. Details of the Temporary Permissions Regime, which allows EEA-based firms to operate in the UK for a limited period while seeking full authorisation, are available on the Financial Conduct Authority’s website (notes 1, 3 and 4). The A class is the most expensive class with an annual management fee of 1.25%.
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