Why SA Inc deserves a place in your client portfolios
Investors are cottoning on that the JSE All Share Index (ALSI) is not so different to major stock market indices in the United States (US) in that certain shares or sectors can dominate returns, causing difficulties for active, benchmark-agnostic fund managers. This message crystallised during a webinar by Rob Spanjaard, CIO, and Simon Sylvester, Portfolio Manager at REZCO, under the title ‘RSA: wrong or just taking long’.
Amazing opportunities in SA Inc
The investment experts conceded that their funds had underperformed year-to-date to 30 September 2025 but went to lengths to rationalise sticking with their current asset allocations and shareholdings. Before getting into the meat of the domestic economic outlook and prospects for the JSE, Spanjaard reminded his audience that his funds were built around quality companies with compounding earnings growth and cheap multiples. “We can look anywhere in the world on multi-asset funds, but we are finding amazing opportunities in South Africa,” he said.
The most recent gold price rally received plenty of attention during the webinar due to its outsized impact on the ALSI. However, after sharing a long-term price series for gold and silver, the CIO declared that risk-averse investors should not be buying gold north of USD4000 per ounce. Precious metals can be incredibly volatile, and while gold could climb higher from its present levels, it could just as easily halve. So, rather than chase gold, you should seek out listed companies in an investment zone between overly cheap value traps and expensive firms.
“We are not value investors in the sense that we are trying to find dirt-cheap companies because there are a lot of minefields in that space,” Spanjaard said. Preferred companies must also offer predictable earnings on a three-year view. Both presenters commented on the JSE being in the “exact zone” that their investment style was designed for, meaning they could select companies without compromising on earnings quality or valuation. Other important share-selection ‘signals include barriers to entry, cash generation, corporate governance and effective management.
A passion for active management
Your writer remains awe of how passionate active fund managers are over their investment styles. In this case, the managers want to know intimate details of each company, the industry it operates in, and broader market trends before committing investors’ funds to it. They examine things like what the company does, its customer base and potential growth, its products’ desirability and whether there are discernible headwinds or tailwinds that may affect trading outcomes over the short term. These forces can be industry- or country-specific.
“Many local companies have had such a tough time of late that a mere lack of headwinds creates a good trading environment for them,” opined Sylvester. He pointed out that improvements in areas like electricity generation and logistics could be game changers in SA’s low GDP growth environment. For example, in conversation with Mr Price’s management, the portfolio manager learned that the clothing retailer had seen a marked improvement in container turnaround times through the Durban port, allowing for more sensible stockholdings.
The REZCO Equity Fund illustrates just how much value is on offer in out-of-favour corners of the ALSI, with a dozen of its main constituent shares trading at an average 17% discount to their long-term price-earnings (PE) ratios at the end of the third quarter of 2025. At the time, the aforementioned Mr Price was offering a 22% discount to its long-term PE alongside Bidvest (22%), Reunert (25%) and Sanlam (26%). “These are quality companies that are all trading well below their long-term PEs,” Spanjaard said. More importantly, the average medium-term earnings growth across the dozen shares stood at 12.9%.
Some interesting investment themes
There are a number of themes that could influence SA equity-market returns over the coming years. These include the already-mentioned gold price rally; the ALSI’s skew towards mining shares and tech; the performance differential between SA Inc companies and the rest of the JSE; and the global rotation from developed markets to emerging markets. “The year-to-date returns from the JSE Top 40 have been dominated by gold and platinum miners and Naspers,” the CIO explained. “And there has not been much growth from the SA Inc shares.”
The presenters offered a one-liner from US investment guru Warren Buffett to assure the assembled financial advisers about the longer term prospects for their funds’ value focus: “The stock market is a device for transferring money from the impatient to the patient.” In this case, patience means sticking with the SA Inc shares in the portfolio and waiting for the “wound-up spring” to unwind. The asset manager’s multi-asset funds have low non-rand exposure, at under 20%, and are also backing SA Inc shares to fill out their equity allocations.
The outlook for the South African rand against offshore currencies is an important consideration for multi-asset managers given that up to 45% of a fund can be invested offshore. Commenting on rand volatility, the presenters pointed out that a fund could gain or lose 15% of offshore equity exposure based on currency swings alone. At around R17.20 to the dollar, the presenters argued that the rand has become a headwind for investing offshore, reinforcing their preference for domestic equity exposure at this point in the cycle. This view is supported by the high chance of a US-market drawdown from current expensive levels.
Electricity and logistics gains
There are some positives for the domestic economy. These include improvements in the manufacturing and services sectors and anecdotal evidence shared by company management in the hotel and retail sectors. Although admitting to erring on the optimistic side, the presenters tallied up private investments and state infrastructure expenditure totalling around 10% of South Africa’s GDP for the coming years. “It is quite hard to have capex of 10% of GDP and still end up with a GDP growth of only 1%,” Spanjaard mused.
Inflation and interest rates cracked a mention too, with the experts arguing that the current levels of interest rates were sufficient to give both businesses and households some breathing room. The South African Reserve Bank (SARB) has maintained a disciplined approach to bring inflation to its new 3% target and has some interest-rate cuts in hand should it have to step in to buffer the domestic economy against global market turmoil. The webinar went into far more detail than your writer could pack into this newsletter, so we wrap with brief comment on some of the standout shares, with the usual caveat that this is not investment advice.
FirstRand Limited emerged as the fund manager’s preferred vehicle for banking exposure. At the time, the fund estimated the share was 20% too cheap, boasting a forward PE of 9.5 times, earnings growth of 10% or better, and a 6% to 8% dividend yield. Spanjaard added that all of the big retail banks looked cheap and that they would likely benefit from tailwinds due to ongoing improvements in their bad-debt numbers.
Love or hate them, Discovery Limited cracked an approving nod too thanks to its offshore interests, notably Ping-An Insurance in China, and its local bank moving towards breakeven.
Your patience will be rewarded
Reunert was a ‘sure in’ thanks to its exposure to tailwind industries like electrification and defence. “They supply the cables for the big electricity grid projects, they have got a big cabling business in Zambia which is doing well, and they have a defence business that sells globally,” Spanjaard said. Although the share had de-rated somewhat around the time of the presentation, it still offered 15% or higher earnings growth for 2026 and 2027.
The parting plea to the advisers on the call, and their clients, was to remain patient. According to Spanjaard, “there is brilliant value on offer in SA Inc; you need to be there for the catch-up … and if you are not there, you should be investing where you find the best value.” Your message to clients who get frustrated with short-term underperformance should be that you cannot predict the moment when sentiment will turn, but you need to be positioned for when it does.
For now, that means staying invested where the valuations make sense, where earnings are on the rise and where companies have a compelling story that aligns with the macro factors.
Writer’s thoughts:
Investors’ fixation on gold and tech stocks has left much of South Africa Inc trading in the shadows. How do you keep client’s patient when short-term performance is so skewed towards the trend chasers? Please comment below, interact with us on X at @fanews_online or email us your thoughts [email protected].
