SA Investment Strategy | Domestic fund managers sector positioning in 2Q19: Where do we differ?

As of June 2019, domestic fund managers were, on average, most overweight the following sectors relative to the FTSE/JSE Capped SWIX Index: Mining, Media (NPN), Tobacco (BTI), General Financials (Investec, Transaction Capital) and Beverages. Real Estate remained the most underweight sector, followed by Food Retail, Mobile Telecoms, Life Insurance and Banks. We were previously cautious on SA Banks. However, we now see an opportunity to upgrade SA Banks (SBK, NED, ABG) to Overweight after the current sell-off with current valuations similar to 2009 levels. Should earnings growth fall by 15% for SA Banks in the next 12 months (which appears unlikely to us), SA Banks' 12m forward PE multiples should re-rate in-line with LT average valuation levels. In contrast to a consensus UW in Insurers, we like OMU for its valuation (7.6% dividend yield) and DSY for offshore growth. While fund managers appear to have trimmed Sasol to Neutral, Sasol currently trades at a 12m fwd PE of 6.2x, levels seen during Oct '08. Thus, we see a good entry point into Sasol. Despite a consensus UW, we remain OW MTN. Domestic fund managers remained Overweight SA Miners in 2Q19. Yet, we downgraded SA General Miners to Underweight in early July, upgrading SA Precious Metals to Overweight.