R500,000 investment challenge: Piet Viljoen vs Magnus Heystek

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A BizNews community member has called for an end to the local vs offshore investment debate. The member, who wishes to stay anonymous, has given Piet Viljoen and Magnus Heystek each half a million rand to invest on their behalf. The investment challenge is simple; which money manager can grow the initial principle the most in a five-year time horizon. Brenthurst founder Magnus Heystek has been advocating offshore investments and diversification for the better part of a decade. He has been very successful, generating superior returns for his clients. Magnus focuses on global investment themes, such as biotech and healthcare, which have outperformed significantly. He is confident offshore investment will continue to come up trumps and has allocated R500,000 in a mix of the following investment products: the Franklin US Opportunities Fund, funds managed by Anthony Ginsberg, and the Brenthurst Global Equity Fund. Piet Viljoen has kept it simple and put his money where his mouth is, investing the entire R500,000 in a fund that he manages, the Counterpoint Value Fund. Piet says there are outstanding opportunities in the South African market, with the small to mid-cap space largely neglected and this creates opportunities. The Counterpoint Value Fund has done incredibly well over the past three years, generating compound annual returns of 18.5% compared to 8.5% for the JSE All Share Index. Two top money managers going head to head, may the best person win. – Justin Rowe-Roberts

Piet Viljoen on his asset allocation: 

It’s going into the Counterpoint Value Fund, a South African Value Fund that is 100% invested in South African listed businesses and very much picked on a value basis. We pick the cheapest stocks you can find. I’m not looking for any sweeteners or something on the side, my own money is in the value fund. I don’t have any assets or stocks outside of the value fund. All my own personal money is invested in the funds that I manage without any outside sweeteners. The top holding is MTN. Discovery, Sanlam, ABSA, Nedbank, Anglo American and Exxaro are all included in the top 10 holdings. It’s a broad mix of commodity, financial and industrial stocks and the common denominator is that they all trade well below what we believe the intrinsic value to be. The market price is well below the intrinsic value. If one looks at the top 10 holdings, it’s all large-cap companies, but the fund is very overweight small caps. If you look at it from a market cap basis, 80% of the JSE All Share Index is large caps. We are sitting at 55%-60% weighting in large caps in the fund and 45% small to mid-cap and that’s only 15% to 20% weighting in the JSE All Share Index. The fund is able to significantly get involved with some of the smaller situations in South Africa. That’s where the neglected value is in the market. As people withdraw the money from the market and move offshore, those things just get sold. As the flows concentrate to the larger fund managers, they don’t care about the small stocks, so they never buy them. The indices don’t care about them, they never buy them. So, it’s a neglected, ignored part of the market. That leaves investors who are willing to crawl through that part of the market with very rich pickings and the returns that the Counterpoint Value Fund has generated over the past five years is testament to that fact.

Magnus Heystek on his asset allocation: 

I’m using the funds that we’ve been using at Brenthurst for quite some time and these are mostly driven by momentum and tech. If you look at the Franklin US Opportunities Fund, it’s a superb fund that has delivered 25% per year for about seven years in that fund. It’s typically US focused and loaded with Amazon, Visa, Alphabet, Nvidia etc. It’s all the well-known brand names that you would expect. Then we have our old friend, Anthony Ginsberg, who has got a tech megatrend, which is even more focused on the tech megatrends and smaller companies not that well known in South Africa. That fund is a very, very cheap ETF. You just buy the fund and Anthony and his team will do asset allocation. Lastly, we are also using the Brenthurst Global Equity Fund, a global ETF fund and a very cheap one. It’s run by Glyn Owen out of Momentum in London and those are the funds that have been working for us. Until that cycle ends … those are the funds we will be using. I still think there is some run left in the tech stock. The tech stocks have dominated. It’s something we don’t have in South Africa. I mean, the global tech market is 26% of the US market and you have to be in that space. If you look at what Tesla has done in the last month, for instance – from $650 to $1,200 – that’s just phenomenal by our local boy (Elon Musk). A lot of our clients have done extremely well out of Tesla. The big trick comes when you make those calls: what will the impact be of increased US interest rates; will it affect the tech stocks or the emerging markets? And then, we have the big variable, which is the currency. We take cognisance of the currency; it can work for you or it can work against you. But the cycles are deep and big, and that’s when we will try and make calls on when we allocate money in and out of that particular fund.

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