Sygnia’s thriving 4IR fund – ‘It delivered 88% returns in dollar terms last year’, says Magda Wierzycka

We have two different vehicles tracking exactly the same indices and investing in exactly the same stocks. We’ve got a unit trust and we have the Exchange Traded Funds. So between them, we manage about R5.5bn in this Fourth Industrial Revolution strategy. In terms of the Exchange Traded Fund vehicle, we have absolutely no limits on capacity that we can accept and take offshore. It’s a very specific structure of foreign ETFs, that there’s actually no cap on the forex exposure via the ETFs. 

On tech stocks within the fund:

 What people don’t understand about the Fourth Industrial Revolution fund is that the fund has over 380 holdings in it. I think the largest holding in the fund is 2.8%. The Fourth Industrial Revolution fund invests in many digital themes. It is absolutely everything that underpins Fourth Industrial Revolution. Virtual reality, drones, autonomous vehicles, electric vehicles, genetics, genomics and gene therapies. There are so many different themes that underpin the Fourth Industrial Revolution fund that we actually refer to it as a bit of a ‘market index of disruptive innovation fund’, if you like.

 If you look at some of the funds that are quoted as potentially imploding, such as the ARK asset management funds – which are often quoted – because they have delivered similar returns to the Fourth Industrial Revolution fund. The holdings in the ARK fund, for instance – there’s a 10% holding in Tesla, which has seen a massive revaluation last year. In the fourth Industrial Revolution fund, I think Tesla stands at 1.5% of the fund. In the top 10 holdings, we don’t have Microsoft, Google and we don’t have Amazon. So it’s a very broadly diversified fund. Having said that, the fund delivered 88% return in dollar terms last year.

On whether Sygnia is positioning their funds for the rotation from growth stocks into value:

The rotation that you are seeing is all about nervousness around valuations. That nervousness is being driven by the fact that it’s all about fears of inflation and what that will do to interest rates. We’re facing a situation where the US is about to pass a $1.9 trillion relief package. That has heightened inflation expectations and heightened expectations that interest rates will go up faster than expected. 

 Although the US inflation number that came out today is, kind of, in line with expectations and not higher – which would have spooked the markets and it hasn’t. What you are seeing is investors trying to time the exit from stocks – which potentially have enjoyed very strong returns last year – into stocks that have not. Now in our minds – certainly in multi-asset class portfolio’s – positioning ourselves for that rotation. 

 But having said that, we are long-term investors and we do believe that the truth of the matter is that many of the old-fashioned value companies might very well be value traps, rather than something that will deliver value simply because it hasn’t run last year. So would you invest in an energy generation company today or in a coal mine? A value investor will tell you definitely coal mining, whereas we would rather invest in solar innovation.

On how big the exposure to emerging tech is:

 We have over 380 different stocks in the Fourth Industrial Revolution fund . Most of the stocks are under 1%, in terms of weighting. Many of these stocks are revenue producing and the whole premise of Fourth Industrial Revolution, when we launched it in 2016, was to invest in companies – not unprofitable companies and not startups – companies which were dedicating a percentage of the R&D spend towards the disruptive technologies.

We haven’t invested in loss making companies. We have invested in companies which rather than buying back shares – which is what we’ve seen from some of these big behemoths of S&P500 do last year in the US in particular – we have invested in companies which have used cash on their balance sheet to invest in R&D in the broad theme of Fourth Industrial Revolution.

 We are not actually particularly concerned that there is a huge bubble which underpins the Fourth Industrial Revolution fund. Which is not to say that if there is a rotation out of tech stocks, that the Fourth Industrial Revolution fund isn’t going to give some of the returns back. You can appreciate that an 88% return in one year is an extraordinary value appreciation. I think on a five-year view, we have only begun.