Northstar quarterly market reports
The Northstar Market Report provides powerful empirical evidence as to why we are confident that our investment philosophy and process, closely followed, will deliver market beating returns for our clients over time. This work again points to controllable factors - markets move wildly, falling in and out of love with different sectors and companies, but we have a defined formula that works and we stick to our guns by only owning quality companies when they are incorrectly valued by other investors. We discuss stocks in this report, delving into our investment cases for specific securities which we own.
CURRENT QUARTERLY REPORT
2018 – Quarter 4
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FROM THE ANALYSTS: FIXED INCOME
South African fixed bonds – An investment opportunity
In this article we assess potential returns from South African fixed bonds. We account for the bear argument that hinges on risks in the system but we juxtapose these against sound inflation targeting by the South African Reserve Bank (SARB) and cheap asset valuations. The SARB targets an inflation level in South Africa of between 3% and 6% - current inflation is at 5.1%. Historically, SA bonds with a duration around 10 years, have delivered inflation beating returns of approximately 2%.
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THE BIG PICTURE
Can South African Fund Managers compete on the global stage?
The Northstar team have a long track record of managing global assets. Since 2012 a significant amount of analyst time has been devoted to global equity analysis, while the acquisition of SignalHill Investment Management at the start of 2017 brought specialist skills and even greater focus to this area of our business. In marketing our global offering, we frequently encounter the view that South African based fund managers are somehow at a disadvantage to global managers, notably those based in the large financial centres such as London or New York.
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FROM THE ANALYSTS: EQUITIES
The market taketh away and the market giveth back
In this thought piece, we provide three bits of evidence that returns from the JSE in the years ahead should improve relative the past 5 year period. Our attached client letter addresses just how savage the market has been this year. What it does not detail is that returns have been dismal for the past five years on the JSE (just over 5% annualised nominal returns). Figure 3 shows the 5 year rolling annualised real return (returns above inflation) from the JSE over time.
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FROM THE ANALYSTS: EQUITIES
British American Tobacco
Over the past two years, the JSE All Share Index has been plagued by the collapse of several stocks which have been adversely impacted by poor corporate governance, industry disruption and an overall weak economic environment. Pleasingly, our research process has led us to avoid most of these companies including the likes of Steinhoff, Aspen, Blue Label, Resilient, Fortress and Ascendis Health as well as prevented us from holding others such as MTN in large weights.
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FROM THE ANALYSTS: EQUITIES
Disney — Navigating a changing media landscape
Disney's high quality content along with its established movie and character franchises affords it the unique ability to manage the disruption to traditional content and media delivery platforms. Through its licensing and theme park operations, the company is also uniquely positioned to monetise its creative content, often over decades, whilst relying on familiar character and franchise content to reduce the risk inherent in traditional creative output.
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CORRIDOR CHATTER
Caveat Emptor, buyer beware
There is an argument doing the rounds that goes something like this: if the ANC gets below 50% in the next election, it will force them to go into coalition with the EFF and then we will see radical policies being implemented. Despite the obvious fact that it’s highly unlikely the ANC national share of the vote will fall below 50%, the proponents antidote is to make sure that everybody “votes for Cyril Ramaphosa” to ensure this ANC/EFF coalition doesn’t happen. Of course the argument is simplistic in its foundation and fatally flawed.
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FUN FACTS ABOUT OUR FUNDS
The Northstar Sanlam Collective Investments Managed Fund
In this quarterly, we look at two key reasons for why it is worth considering investing in the Northstar SCI Managed Fund. Northstar as a business. In the South African asset management industry, Adrian Clayton has one of the longest track records of managing balanced funds and he is supported by a team with an average of 18 years investment experience. Northstar has a very clear and consistent investment philosophy, being quality at a reasonable price.
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STAFF MEMBER PROFILE
Rachel Finlayson
I read Rachel’s responses on her interview questions feeling a deep sense of satisfaction - we are on the right track at Northstar - we are passionate investors, we are always learning, we are humble and most importantly, we place our clients at the centre of our efforts. My final word on Rachel is that you will ascertain from the interview that her passion is numbers, she is our quantitative analyst in our firm and consequently, I have left her answers in bullet point as it talks to the structure of her mind.
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