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Kimon Boyiatjis from Trident Capital closed off this week’s market analysis by taking a look at some of the fresh news from the SENS today. Kimon started off with BHP Billiton providing shareholders with an update of its decade long portfolio simplification, shareholders responded well to the news and BHP Billiton is up just under 4% on the day. Kimon also lent his insights to the knock-on impact of Abil on money markets in the country, an aspect of the saga that no-one has yet investigated. Along with a look at resources Kimon touches on a disappointing trading statement from Lewis Group. Kimon offers thorough expertise on all of the relevant business news for the day. – LF
ALEC HOGG: Well, let’s get a more in-depth view on how the market’s trading. Kimon Boyiatjis is in our Cape Town studio. He’s with Trident Capital. Okay, Kimon. You often tell us you can’t talk about the little stocks, but you surely have to talk to us about BHP Billiton. As Thumi was saying earlier, there was an announcement on SENS today that they’re now splitting into the four pillars. Prior to that, we had their results and there’s lots of celebration for people who are invested in that stock – you too, no doubt.
KIMON BOYIATJIS: Absolutely. I think we’ve discussed it before. We prefer diversified miners and I suppose it’s with a sense of relief that we’ve seen a good set of results, but it was really to be anticipated. I think they have a good management and the fact that their portfolio is so well diversified, both with the kind of assets that they hold and the fact that they hold them across the globe, really. It’s a stock we’re very comfortable with and we anticipate a good performance from Anglos, as well, so I think that will follow on the tailcoats of BHP.
GUGULETHU MFUPHI: Kimon, just to pick your brain further on your view on resources… Their simplification criteria or the realignment in the strategy: is this one that works for investors?
KIMON BOYIATJIS: Absolutely. What we are seeing is a bit of corporate activity across that sector. Hopefully, most of the management make good decisions, but I think they’ll be realigning some of their portfolios – assets that aren’t working. We saw some movement with Rio Tinto recently where they dumped assets in Mozambique at a substantial loss, but I think we’re going to be seeing this across the sector. There’s a new player who actually probably has a portfolio that they could start trying to amass. It’s a new company. It’s not listed yet and there are some noises that they’re looking to pick up assets across the globe, based out of Switzerland. I think we’re going to see a bit of activity there and it’s certainly a sector that, in my opinion, is moving positively and is the one we’re the longest of.
ALEC HOGG: Are you talking about Mac Davis’ new company – the one from Switzerland?
KIMON BOYIATJIS: Yes.
ALEC HOGG: He didn’t exactly shine with Xstrata. Do you think he will this time?
KIMON BOYIATJIS: I think it’s a different set of circumstances and they have good backers as well. It’s like your portfolio managers. I was listening a little earlier, about how portfolio managers are lambasted because they hold certain stocks – like Abil, as you mentioned earlier. You’re rather forced into those plays because of the intermediaries. Just to give you an example (and I’ll get back to Xstrata now), a couple of years ago, I was the only asset manager in the country who didn’t have any credit in the portfolio. Despite outperforming my benchmarks and despite having gotten a performance bonus for how well the portfolios had performed, the intermediaries whom we had to report to were complaining that I didn’t have any credit where all my peers had. It’s kind of the same thing and I think that’s what Xstrata was.
They had a portfolio of assets that I don’t think they were necessarily all that comfortable with, but were almost put into that by some of their shareholders. The difference now with this new company is that they have a clean slate and they can be really picky about what they put into their portfolio.
ALEC HOGG: It’s the right time, as well. Kimon, getting back to holding credit, something that hasn’t yet emerged in the wake of the Abil disaster is breaking the buck. You will remember in 2009, the Money Market Funds in America got into a major furore there. We’ve seen some Money Market Funds here in South Africa breaking the buck as well. Just unpack that for us and perhaps explain that some people who’ve put their money into the safe haven of Money Market Funds will find that it isn’t quite as safe as they thought.
KIMON BOYIATJIS: Well, one of the things we’ve seen in the past is that the rules for Money Market Funds are very strict, particularly unit trusts, so that should be your safe haven. I think the difference between ourselves and the U.S. is that the rules are much tighter here, so the kind of credit that you can put into a portfolio in South Africa due to the regulations, is a lot tighter. I agree with it because that is a place that should always be a safe haven for investors. Now, the objective of the Act that governs the unit trust and Money Market Funds is such that it should never show a capital loss – overall – and the assets that one is obliged to put into it are very tight. There is a downside – possibly – if you buy the paper of weak banks. If the credit is correct, and you are going according to the law in what you’re allowed to do, there’s a possibility that a bank collapse, as we’ve seen with Abil.
The objective is that it should be a safe haven, but it isn’t always. In fact, Abil’s stock and debt is one that we completely avoided. However, there is often pressure for you to put certain corporate debt into a portfolio, purely because of the intermediaries that we report to.
ALEC HOGG: But the problem in all of this is that there are some money market funds that did own Abil debt, and that now are no longer trading at R1.00 as they are supposed/obliged to be, and nothing’s been said about that yet. To their credit, neither Coronation nor Allan Gray are guilty of this, so although we’ve been hitting them as far as the equity holdings are concerned, they avoided this on the money market funds. Kimon, that’s a problem that’s emerging.
KIMON BOYIATJIS: Yes. Again, and credit to them (excuse the pun) for not having that debt in the portfolio. What often happens is because we fortunately avoided the routs in banks that we saw in the U.K., U.S., and some parts of Europe, we’d largely avoided that. There’s almost a sense of complacency in our industry. It almost couldn’t go wrong. That’s certainly one that would never have been in a portfolio of ours and the problem is that we have been fortunate and have avoided it, and perhaps certain fund managers haven’t done enough work in including that kind of debt in their portfolios.
GUGULETHU MFUPHI: Kimon, just to close off with, does this raise new red flags with regard to Lewis? They’re also out with a disappointing trading statement with the share price taking a knock down today, as well.
KIMON BOYIATJIS: Well, I never liked that sector either. We saw what happened when Abil did what they did in that sector. I just think there’s no upside, really. I think the risks are too high. The PE’s that these stocks were trading at were too high, and therefore, don’t offer enough comfort for me. I can’t say anything negative about the company, but it’s certainly not a sector I want to play and certainly, not at those prices.
GUGULETHU MFUPHI: Well, strong warning signs there from Kimon Boyiatjis. He’s from Trident Capital.
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