A comprehensive range of international solutions

27 July 2008 Coronation

Opportunities in both developed and developing markets

The Coronation range of global funds provides investors with access to investment opportunities across geographies and currencies. A key objective in the development of which was the creation of world-class index-beating portfolios to support the offshore investment component of South African clients. Over time, the range has been strengthened to include both fund of funds (long only and hedge funds) and, most recently, single manager funds; reflecting the opening up of developing markets and the changing needs of individual and institutional investors.

While the maxim that 'every day somewhere in some market an asset is cheap and in another market somewhere another asset is expensive' is true, our aim is to create portfolio solutions that deliver on their objectives and add long-term value to a client's overall portfolio. We do not offer the latest theme or trendy investment opportunity, but rather a range of funds that is relevant, efficient and easy to understand.

Many of the funds are stand-alone global solutions, while others are more suited to be used as building blocks within an overall diversified portfolio.

For the purposes of this article we showcase two of the most exciting and innovative product developments, the Coronation Latitude and Global Emerging Markets Equity funds.

Coronation Latitude

The Coronation Latitude portfolio offers investors a single point of access to a myriad of investment opportunities. Managed by two former Coronation chief investment officers, Tony Gibson and Louis Stassen, Latitude is a flexible portfolio which invests across asset classes in both global and emerging markets.

The fund aims to provide capital appreciation over a three-to-five-year period through exposure to equities, listed property, Real Estate Investment Trusts (REITs), listed commodity funds, Exchange Traded Funds

(ETFs) and fixed income instruments.

Given the overriding capital appreciation objective combined with a challenging outperformance target, the fund is equity centric with roughly 60% equity exposure through an economic cycle. Cash and hedging is actively used to reduce the risk of capital loss, with a portfolio drawdown of 10% leading to immediate portfolio action against further loss.

While the fund is priced in US dollars, there is an active currency allocation overlay on the portfolio. In addition, regional allocations in the portfolio are also actively managed.

What makes Latitude unique?

The fund's broad mandate allows a unique combination of the managers'more than 40 years' exposure to single and multiple manager approaches with an array of both fundamental, in-house research capabilities and the broad exposure our select group of global fund of fund managers provide. The addition of a fully fledged Global Emerging Markets team, which operates alongside our Cape Town-based investment team, further broadens the tool set available in constructing this focused, best ideas global portfolio.

The portfolio is constructed from a bottom-up process based on our active views of the prospects for the various asset classes globally. We combine this with our macro-economic view on regional and currency markets, and utilise our select blend of global managers to implement these views at an individual stock level. This approach allows us the opportunity to combine our well-researched, high-conviction asset class, regional and currency views with the stockpicking skills of the boutique managers with whom we have invested since the inception of our London-based fund of fund business in 1996.

Through this unique approach we intertwine portfolio construction with risk management, especially with regard to more active changes in regional and currency allocations. To ensure that our best views are indeed expressed in the actual portfolio, we utilise instruments such as ETFs when we deem these to be a quicker, more efficient way to obtain exposure to an asset class, region or sector.

In summary

To demonstrate the high-conviction, unique nature of Latitude, the benefits of drawing on both in-house active research and the broad coverage afforded through our global emerging markets team and select group of chosen global managers, we provide you with an insight to our current views through the fund's most recent asset allocation and regional structure.

Coronation Latitude was launched as an institutional portfolio on 12 May 2008. The rand denominated unit trust fund is currently pending FSB approval.


Coronation Global Emerging Markets Equity

After two years of research, preparation, appointment of qualified people and the necessary regulatory and legal requirements we are delighted to be in a position to offer a global emerging markets (GEM) solution to our clients.

GEM Equity is a focused equity portfolio, managed by our global emerging markets team of analysts and portfolio managers. The team of six dedicated professionals is headed up by Gavin Joubert, who has extensive portfolio management and research experience, and should be well known to most clients. The portfolio management responsibilities for the GEM Equity portfolio reside with Mark Butler, who has 11 years of dedicated emerging markets exposure, with amongst others Aberdeen and Barings (both in London). He is assisted by Suhail Suleman.

Coronation GEM Equity

The focus of the GEM Equity Fund is to provide significant capital appreciation over a three-to-five-year period through investing in emerging markets. By applying Coronation's long-standing investment philosophy of fundamental, bottom-up stock picking, we aim to outperform the MSCI GEM Index over measurement periods of three years and longer.

Given the structural arguments made about the long-term growth opportunities in emerging markets, exposure to this growth is best captured through a selection of undervalued but unique businesses with listed securities on the various stock exchanges. It should however be noted that emerging markets can experience sharp price declines (20% to

30%) over a relatively short period of time and, whilst we would expect our fund to typically hold undervalued shares and hence be less sensitive to such massive moves, as an equity centric portfolio it will not be immune to such moves.

In the event of not finding any compelling value based on our in-depth research, the fund mandate does allow for a cash holding. It is, however, unlikely for this cash holding to exceed 20% as the fund aims to be fully invested at all times.

What makes GEM Equity unique?

The opportunity set as presented by global emerging markets has grown significantly in recent years. Financial markets have continued to open up and many emerging economies have matured in terms of prudent economic policies and more stable political regimes. This has resulted in more sustained development of capital markets and infrastructure.

The merits of investing in global emerging markets are compelling to a wide array of investors, including acquisition targets for both large global corporations and emerging market businesses. (MTN is currently a good example of such a takeover target).

The GEM team can also capitalise on Coronation's stockpicking ability, underpinned by rigorous research across corporate South Africa. In simple terms, the investment philosophy aims to:

o buy shares that are trading well below their fair value (valuation-driven approach);

o focus on normalised, free cash flow as opposed to current earnings; and

o focus on a long time horizon (five years) as opposed to short-term news flow and momentum.

While the actual portfolio track record is still relatively short at six months, the initial results have been encouraging. We will however only claim any level of success once a minimum three-year track record has been established. We are confident that the quality of our team, the robustness of our process and long-term assessment horizon will deliver results.

A snapshot of the current geographical allocation overleaf gives a sense of the size of the opportunity set and the potential to identify good quality businesses in these markets.

The GEM Equity Fund is aimed primarily at institutional investors requiring full exposure to emerging equity markets, while its South African-domiciled sister portfolio, the Coronation GEM Flexible Fund, is more suitable for individual investors with a long-term time horizon.

While GEM Flexible will also be biased towards equity investments over time, its mandate allows us to reduce equity exposure if we do not believe that sufficient value exists at a specific point in time.




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