Piet Viljoen: The true blue value fund manager

FUND FOCUS

Piet Viljoen. 

Nedgroup Investments Managed Fund (A)
Price:	R3.57
Inception:	01 Nov 2003
Domestic Asset Allocation Prudential Variable Equity
Fund Size:	R 2,836.2m
Price Performance
12 months:	30.73%
24 months:	20.27%
More Details...

In the third quarter of 2008, it was easy to see which value fund managers were remaining true to mandate and which ones had caught the speculative bug. The 'true blue' value fund managers had performance rankings in the doldrums, while the others had more respectable performances. Now, however, post market capitulation, the tables have turned.

At the peak of the market it was impossible to remain a value fund manager while simultaneously posting top decile returns in an investing environment that could only be described as speculative.  Fund manager Piet Viljoen has always positioned himself as a conservative manager of money, and this showed in his pre-market-fall performances.

At an investment briefing this week, speaking about the Nedgroup Investments Managed Fund in particular, the gruff straight-talker told how he stopped buying speculative stock from 2006 onwards.

'We stopped buying Anglo American, Impala Platinum, we sold all our small and medium companies over an 18 month period, we did not buy any of the Initial Public Offerings (IPOs) and we closed our fund to new investors in November 2006,' he said.

He took a swipe at those who had bought into the frenzy of the rising market, including 'really smart people like the CEO of Anglo, who bought back stock at R600 a share' and all those who had sold out of conservative managers, opting instead for more risky options at the peak of the market.

In defense of calling the market fall too soon, he said that fund managers had to 'prepare for these events long before they happen, … no one knows where the top is and where the bottom is'.

Turning to the present, he said that he believed that over the next ten years, market returns will be in the region of 7.5%.  

His investment philosophy is well known to the market: he buys cheap assets. 'A cheap asset is an asset that is below its worth. We do not buy pieces of paper, we buy part-ownership of a business, which gives us a part-claim on the future cash flow of that business,' he says.  

He is on record as saying that most of his time is taken up getting to know business, businesses and the people that run them, and then to attempt to value them in a sensible way.

'Only after we have our ducks in a row do we establish entry and exit price ranges. The very last thing we do is to check the traded prices to see if anyone is offering to do something we can take advantage of.

'From a fund capital allocation perspective it becomes reasonably simple -we make a list of only the businesses where we have a high level of conviction in our own research; we rank them in terms of quality, cheapness, business cycle and popularity; and allocate fund capital to only our best ideas. The higher up the list, the more capital is allocated, and viceversa', he says

In the January fund fact sheet of the Nedgroup Investment s Managed Fund, he is quoted as saying that he has waited a very long time but Old Mutual 'finally made it into our entry price level range during the course of December/January and we established a reasonable 'at cost' position.

 'Our investment process prevents us from giving it full weight as it falls into our non-core stock category given its case-study worthy track record of poor capital allocation, but every asset has a price and our work points to there being a lot of value lying on the ground in this instance. This is a very unpopular business at the moment and the Old Mutual share price discounts a lot of pessimism, too much in our view.

'The underpin to the valuation is the life insurance and asset management divisions in Old Mutual South Africa, which we assess to be quality franchises, generating good free cash flows. Our valuation for this segment alone is equal to the current market price for the whole business -another way of stating this investment case is that at the current price, you are getting stakes in Nedbank, Mutual & Federal, Skandia, US Asset Management and US Life for nothing.

Currently the top ten holdings of the Nedgroup Investments Managed Fund include Metropolitan Holdings, Sun International, Discovery Holdings, Adcock Ingram Holdings, Harmony Gold Mining Co, Woolworths, Standard Bank Group, Imperial Holdings, Pick and Pay and JD Group.

The assets under management of the fund are just less than R2 billion and the total expense ratio of the fund is 1.82%.