Coronation sends a warning to South African investors

The rally that has driven the gold price to record highs and sent platinum surging is likely near its peak, potentially leading to a sharp decline in South Africa’s benchmark All Share Index. 

Furthermore, the management teams of precious metals miners have tended to return little of the “super profit” years to shareholders. 

Instead, these teams have tended to use profit windfalls to develop further mine expansions or engage in costly mergers and acquisitions, destroying shareholder value. 

This is feedback from the portfolio managers of Coronation’s premier Top 20 fund, which manages over R33 billion in assets. 

Fund managers Neville Chester, Nic Stein, and Nicholas Hops explained that the stellar performance of South Africa’s equity market in 2025 was narrowly driven by precious metals miners. 

The JSE All Share index returned 43% in rands in 2025, despite being down by over 10% at the beginning of April when US President Donald Trump imposed tariffs on imports to America. 

While Coronation’s Top 20 fund delivered its best performance in more than a decade with a return of 28%, it was still well below the benchmark. 

This is because the fund has been underweight gold shares and steadily reduced its exposure to platinum group metals throughout 2025. 

These shares now make up over 26% of the JSE All Share and over 32% of the Top 40 index, driving the performance of the broader market higher. 

Chester, Stein, and Hops warned that forecasting commodity prices is extremely tricky, particularly in relation to precious metals that have little industrial use. 

There are a few concrete indicators of sustained demand into the future, as buying activity is determined largely by emotions and the belief in being able to sell the commodity for a higher price in the future. 

“After many decades of investing in commodity-driven markets, we are, however, very certain of the cyclicality of all commodity industries and are very wary of investing heavily at the top of the cycle,” the fund managers said. 

“Calling when exactly the cycle will peak is an inexact science, but given the extreme price rises we have seen in commodity prices, we are undoubtedly in the top part of the cycle.” 

Chester, Stein, and Hops pointed to the rise in corporate M&A as an indication that the top of the cycle is near. In the past few months, two potential mega mergers of Rio Tinto and Glencore and Anglo-Teck have been announced.

Investors unlikely to see rewards

Apart from the fact that it is incredibly difficult to project commodity prices into the future, there has also been little benefit for investors in precious metals miners during previous rallies. 

The management teams of these companies tend to misuse the windfall by engaging in costly mergers or by expanding their mining portfolio without being certain of future demand.

“To invest over a quarter of the portfolio today into speculative commodity-driven companies, we deem to be a significant risk,” Chester, Stein, and Hops said. 

“We are particularly concerned by the fact that gold mining companies have typically returned very little of the super profit years to shareholders.”

The fund managers pointed to the fact that these companies have engaged in no share buybacks despite the excess profits they are generating. 

This, the fund managers said, speaks volumes about what the management teams of these companies think of the current market valuations. 

Coronation’s Top 20 fund managers are not the only professional investors to warn about the lack of benefit in the current rally for investors in mining companies. 

Allan Gray’s Jithen Pillay warned earlier this year that shareholders are unlikely to reap the rewards of the surge in precious metals prices. 

Pillay explained that Allan Gray’s equity portfolio has also looked to reduce its exposure to precious metals miners and is increasingly selective about their inclusion in the fund. 

The fund exhibits a strong preference towards mining companies with a track record of returning free cash flow to shareholders rather than pursuing expensive expansion deals or mergers. 

This positioning has impacted the performance of Allan Gray’s equity fund in the short term, with the domestic component of the fund underperforming the JSE All Share Index.

“While we have a constructive view on the gold price over the longer term, in the short term, the price will likely be volatile amid shifting geopolitical and macroeconomic conditions,” Pillay said. 

“South African gold miners also have a poor long-term track record. Historically, gold price windfalls have often been eroded by poor cost discipline and value-destructive expansion.” 

The positioning of the domestic component of the equity fund forms part of the portfolio’s overall leaning towards defensive companies and sectors. 

“Given current valuations, we are concerned about the prospects for absolute returns bost globally and locally,” Pillay said. 

“In South Africa, a slow reform agenda, anaemic capital investment and infrastructure concerns underpin our view that meaningful economic growth will remain elusive.”

As a result, the fund’s domestic component is skewed towards defensive rand hedges, such as British American Tobacco and AB InBev.