Top South African asset manager sends a warning to investors

Coronation has warned investors that increasing their exposure to gold may result in substantial losses in the coming years as costs follow prices higher. 

This is particularly true for South African gold miners, which have some of the highest operating costs in the world and historically short ‘mine lives’ that require constant investment. 

Fund managers Neville Chester, Nicholas Stein, and Nicholas Hops explained the asset manager’s stance on investing in gold in a recent research note. 

The three portfolio managers are responsible for Coronation’s Top 20 fund, which is highly concentrated in the largest companies on the JSE and sits on R33 billion in assets. 

The fund returned 4.7% for the third quarter of 2025 and 15.2% for the past twelve months, with annualised returns of 16.4% per annum since its launch in 2000. 

“Shorter-term performance has been disappointing relative to the benchmark, explained by our underweight position in gold shares,” the fund managers said. 

They flagged the highly concentrated nature of the returns produced by the JSE so far in 2025, with performance driven largely by precious metals miners. 

The JSE Capped SWIX Index has returned 28% over the past year. Excluding gold miners, this drops to 15.6%, and without platinum and gold miners, it drops to 10.2%. 

Coronation’s Top 20 Fund has largely missed out on this, with its only significant exposure to precious metals being its holding in Northam Platinum. It remains underweight on gold stocks.

“We note a significant investment conundrum for both gold and gold equities. Both the gold price and South African gold miners are trading at all-time highs, with commentary suggesting we are in the ‘frothy phase’ of a bull market,” the fund managers said. 

The bull case for gold is based on increasing systemic risks and consistent buying from central banks looking to reduce their exposure to the dollar. 

Other drivers include rising geopolitical risk and the slow-brewing crisis associated with overindebted sovereigns globally. 

“Given these accumulating risks, gold is seen as one of the very few legitimate monetary assets and hedged, which remains under-owned by investors looking for an alternative to fiat currency,” they said.

The combination of these factors has seen the price of gold rise by over 45% in the past year, with the simultaneous rise in the share prices of gold miners driving the JSE higher. 

Pumping the brakes

Chester, Stein, and Hops explained why they maintain a cautious stance on gold and outlined why other investors should too. 

Historically, every comparable gold bull market has been followed by a downcycle, resulting in steep losses for shareholders. 

“Costs tend to follow prices higher, albeit with a lag. We expect the same from this cycle,” the fund managers said. 

Typically, during commodity booms, miners increase their capex on expanding existing operations, building new mines, or granting significant salary increases to employees. 

When the market turns and commodity prices plunge, this results in many having to substantially cut costs, typically in the form of job losses. 

South African gold miners are notoriously sensitive to these swings due to their elevated operating costs and the steady decline in reserves.

“South African gold miners are characterised as inherently poor businesses due to being high-cost and having short mine lives that necessitate ongoing capital expenditure,” they said. 

“These companies have historically been poor stewards of shareholder capital, exhibiting poor cost control, engaging in value-destructive corporate actions and failing to return cash to investors consistently.”

As a result, Coronation’s Top 20 Fund remains underweight in gold equities, with its preferred exposure being AngloGold Ashanti. 

The fund has also shaved its holding in Anglo American after a strong run over the past year due to its implementation of a simplification strategy to increase its exposure to copper.

This has been coupled with the fund increasing its exposure to Glencore, which has lagged its peers due to production mishaps at its copper mines and a lower coal price. These are both seen as temporary by the fund managers. 

Chester, Stein, and Hops made two new investments in the past quarter, snapping up shares in MTN and Bytes Technology Group. 

MTN’s Nigeria and Ghana businesses have performed well, supported by strong data demand and disciplined pricing dynamics. 

Bytes represents a high-quality play on structural growth in cloud computing, cybersecurity, and AI-driven IT spend, particularly within the UK’s mid-market and public sectors. 

The company’s recent sales force realignment and segmentation exercise are strategically aimed at expanding capacity and deepening specialisation, which are critical levers to capture rising demand in Microsoft’s Cloud Solution Provider and AI ecosystems.