It is widely known that global equity market benchmarks are not all that easy to beat. Looking at the global equity category (Morningstar Global Large-Cap Blend Equity) vs. the MSCI World Index as at the end of April , interestingly:
- Less than a third of funds in the category outperformed the index over one year;
- Less than a quarter of funds outperformed the index over three years; and
- Only 20% outperformed over 1 and 3 years.
The Denker Global Equity Fund (USD) and the Denker SCI* Global Equity Feeder Fund (ZAR) have not only outperformed their MSCI World Index benchmarks over 1, 2 and 3 years, but have also performed exceptionally well vs. their category peers over these periods. In a world where so many global equity funds exist, we are pleased with the performance that we have generated for investors.
This article first appeared in Glacier’s Funds on Friday.
The Denker Global Equity Fund has performed exceptionally well versus its peers in the last three years.
Performance numbers as at 30 April 2024, place the Denker Global Equity Fund in the top 10% of its Morningstar category over 1, 2 and 3 years . Effectively this means that over these periods, the fund has outperformed 90% of over 1,000 peers. Remarkably, over 2 years the fund is in the top 2% of performers and over 3 years in the top 4%.
This performance has carried through to the fund’s rand-denominated feeder fund. The Denker SCI* Global Equity Feeder Fund has also delivered compelling performance over the last 3 years, ranking in the top 10-20% of performers in its ASISA category over 1, 2 and 3 years .
Over the short term, PE multiple expansion/contraction is usually the main source of return, but earnings matter the most over the long term.
Please see figures 1 and 2 below for the full performance history and rankings.
Figure 1: Denker Global Equity Fund – annualised performance and ranking, as at 30 April 2024:
Source: Morningstar, Denker Capital. Returns for periods longer than one year are annualised. Net of A class fees of 1.5%. The highest annual calendar return in the last 10 years was 24.4% and the lowest was -11.9%. Morningstar category: EAA OE Global Large-Cap Blend Equity. Category ranks based on returns gross of fees.
Figure 2: Denker SCI* Global Equity Feeder Fund – annualised performance and ranking, as at 30 April 2024:
- For the comparison, the oldest share class was used for each fund. Returns are in US dollar terms and net of fees.
- Morningstar category: EAA OE Global Large-Cap Blend Equity. Category ranks based on returns gross of fees.
- ASISA category: Global – Equity – General. Category ranks based on retail class returns, net of fees.
Source: Morningstar, Denker Capital. Returns for periods longer than one year are annualised. Net of A class fees of 1.25% (excl. VAT). The highest annual calendar return in the last 10 years was 32.2% and the lowest was -10.4%. ASISA category: Global – Equity – General. Category ranks based on retail class returns, net of fees.
*Sanlam Collective Investments
We attribute the strong performance to the strength of our team, our approach, and 20 years of researching and investing in global equities.
Experience
Our team has a deep understanding of market cycles and of investing in local and international markets. We’re able to lean on this experience to make measured and informed decisions efficiently, even in highly pressured circumstances. Our global equity team is led by Portfolio Manager Jacobus Oosthuizen, who has over 20 years of experience. All the team members are CFA charterholders.
Figure 3: Our global equity team
Note: Years with Denker Capital include time prior to 2015 launch.
Source: FactSet, 31 May 2024
Small and mid-cap exposure
- Atmus Filtration is primarily engaged in the design and manufacture of fuel, oil and air filters for commercial vehicles. The company was spun out of Cummins (a commercial vehicle engine manufacturer) in May 2023. Atmus benefits from high returns on capital, strong cash generation, a high proportion of recurring aftermarket sales and strong relationships with original equipment manufacturers (OEMs). Longer-term, the transition to new energy vehicles presents a risk as current sales are skewed towards solutions for diesel engines. However, healthy cash generation should enable the company to expand into adjacent industrial filtration markets in due course. Atmus listed at a depressed valuation, in our view, which presented us with an attractive investment opportunity. In March 2024 Cummins completed the unbundling of the remainder of its Atmus holding, and the Atmus share price has since re-rated significantly as liquidity improved.
- Melrose Industries is a company that previously specialised in the turnaround of underperforming industrial assets. In March 2023 the company spun off its automotive and power metallurgy assets to concentrate all its efforts on GKN Aerospace, its best positioned and now sole asset. Melrose has demonstrated a remarkable turnaround with its FY23 results, surpassing ambitious targets set a year ago. The company has shown strong performance, particularly in its engines segment, which accounts for a significant portion of its profit. GKN Aerospace’s strategic partnerships with leading engine and aircraft OEMs ensure long product lifecycles and high barriers to entry. The repositioning of the structures segment is also promising. By identifying Melrose as an investment opportunity early into its restructuring, the fund was able to establish a position at a very attractive valuation. The share price has since improved meaningfully as management delivered on its stated objectives. In our view, ample runway remains to further improve cash generation, and we remain long-term investors in the company.
Local and global integrated research approach
The ability to assess investment opportunities and risks on a global basis is a luxury few managers enjoy. 2024 marks our 20th year of researching global stocks in-house. This experience helps us to understand risks and opportunities in different geographies and sectors worldwide, and to act quickly when identifying these.
For South African investors, investing offshore provides certain benefits.
These include:
- Investment diversification: By investing in different countries, sectors and geographies, you reduce your risk by spreading your assets across economies, sectors and markets.
- Global growth exposure: Investing internationally gives you the opportunity to participate in the growth of other economies and sectors. This can be a way to boost your returns and assists you to not be solely dependent on the growth of the South African economy.
- Hedging against rand depreciation: The rand is a relatively volatile currency and by investing internationally you are able to hedge against the risk of rand depreciation.
- Mitigation of South Africa’s political and economic risks: There are always risks associated with investing in any one country. By investing internationally, you can mitigate some of the political and economic risks associated with investing only in South Africa.
To illustrate the benefits of investing offshore, in Figure 4 we’ve illustrated the returns that would have been earned on R100 over three years for three different scenarios:
- 100% invested in SA equity funds (ASISA SA Equity General category)
- 55% invested in SA equity funds and 45% invested in the Denker SCI* Global Equity Feeder Fund
- 70% invested in SA equity funds and 30% invested in the Denker SCI* Global Equity Feeder Fund
Figure 5 uses the same scenarios to illustrate the risk vs. return over the three year period.
Figure 4: The benefits of diversification illustrated by cumulative performance as at 30 April 2024
Source of performance data: Morningstar, 30 April 2024. The A1 class has an annual management fee of 1.25% (excl. VAT). Returns are net of fees.
*SCI stands for Sanlam Collective Investments
Figure 5: The benefits of diversification illustrated by risk vs. return over three years to 30 April 2024
Source of performance data: Morningstar, 30 April 2024. The A1 class has an annual management fee of 1.25% (excl. VAT). Returns are net of fees.
*SCI stands for Sanlam Collective Investments
Invest in the Denker Global Equity Fund, either in USD or via the ZAR denominated feeder fund, to benefit from global diversification and future return potential.
Global share prices are likely to remain volatile for the rest of the year, as market expectations evolve. We believe that amongst the volatility, there will continue to be attractive opportunities to allocate capital to high quality companies at favourable valuations. In the meantime, the fund remains exposed to a well-diversified portfolio of companies with attractive business economics and good management teams that we believe should be able to continue to compound capital at attractive rates of return over the long term.
For more information or to find out how to invest, please contact us us. View the latest fund information by clicking on the links below:
Denker Global Equity Fund
- Minimum disclosure document
- Fund overview
Available via: Sanlam Asset Management (Ireland), Allan Gray, Glacier, Momentum and NinetyOne.
Denker SCI* Global Equity Feeder Fund
- Minimum disclosure document
- Fund overview
Available via: Sanlam Collective Investments, AIMS, Allan Gray, Glacier, Momentum, NinetyOne, Old Mutual, PSG and Stanlib.
Tax-free savings option available.
Disclosure
The information included above belongs to Denker Capital (Pty) Ltd and Sanlam Collective Investments (RF) (Pty) Ltd. The information should only be evaluated for its intended purpose and may not be reproduced, distributed or published without our written consent. Although all reasonable steps have been taken to ensure the information in this brochure is accurate, Denker Capital and Sanlam Collective Investments do not accept any responsibility for any claim, damages, loss or expense – however it arises, out of or in connection with the information. No member of Sanlam gives any representation, warranty or undertaking, nor accepts any responsibility or liability as to the accuracy of any of this information. The information does not constitute financial advice as contemplated in terms of the Financial Advisory and Intermediary Services Act, No 37 of 2002 (FAIS). Use or rely on this information at your own risk. Consult your financial advisor before making an investment decision. Sanlam Collective Investments (RF) (Pty) Ltd is a registered and approved Manager in Collective Investment Schemes in Securities.
The Denker Global Equity 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 1.5%.
The Sanlam Universal Funds Plc full prospectus, the fund supplement, the minimum disclosure document (MDD) and the KIID are available free of charge from the Manager or at www.sanlam.ie. This is neither an offer to sell, nor a solicitation to buy any securities in any fund managed by us. Any offering is made only pursuant to the relevant offering document, together with the current financial statements of the relevant fund, and the relevant subscription/application forms, all of which must be read in their entirety together with the Sanlam Universal Funds Plc prospectus, the fund supplement the MDD and the KIID. No offer to purchase securities will be made or accepted prior to receipt by the offeree of these documents, and the completion of all appropriate documentation. A schedule of fees and charges and maximum commissions is available on request from the Manager.
The Manager of the Denker SCI Global Equity Feeder Fund is Sanlam Collective Investments, a registered and approved Manager in Collective Investment Schemes in Securities. Collective investment schemes are generally medium- to long-term investments. 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. Changes in the exchange rates may have an adverse effect on the value, price or income of a product. A schedule of fees and charges and maximum commissions is available from the manager on request. Collective investments are traded at ruling prices and can engage in borrowing and scrip lending. Additional information on the proposed investment, including brochures, application forms and annual or quarterly reports, can be obtained from the Manager, free of charge. Forward pricing is used. The Manager does not provide any guarantee either with respect to the capital or the return of a portfolio. Performance is based on NAV-to-NAV calculations with income reinvestments done on the ex-div date. Performance is calculated for the portfolio and the individual investor performance may differ as a result of initial fees, actual investment date, date of reinvestment and dividend withholding tax. Lump sum investment performances are being quoted. The performance of the portfolio depends on the underlying assets and variable market factors.
Collective investments are calculated on a net asset value basis, which is the total market value of all assets in the portfolio including any income accruals and less any deductible expenses such as audit fees, brokerage and service fees. The manager has the right to close the portfolio to new investors in order to manage it more efficiently in accordance with its mandate. Funds that hold assets in foreign countries could be exposed to the following risks regarding potential constraints on liquidity and the repatriation of funds: macroeconomic, political, foreign exchange, tax, settlement and potential limitations on the availability of market information. The A1 class is the most expensive class of the fund with an annual management fee of 1.25%. A feeder fund is a portfolio that invests in a single portfolio of a collective investment scheme, which levies its own charges, and which could result in a higher fee structure for the feeder fund. The Denker SCI Global Equity Feeder Fund is an approved collective investment scheme in terms of Collective Investment Schemes Control Act, No 45 of 2002 (CISCA).
Sanlam Collective Investments retains full legal responsibility for the co-branded portfolios. The portfolio management of the fund is outsourced to Denker Capital (FSP no: 47075), an authorised financial services provider in terms of the FAIS Act. Standard Bank of South Africa is the appointed trustee of the Sanlam Collective Investments scheme.
Source of performance figures: Morningstar. Returns are annualised and net of fees unless otherwise stated. An annualised return is the weighted average compound growth rate over the performance period measured.
