Gail Daniel’s Ninety One Managed Fund – the shares it owns

The Ninety One Managed Fund was launched 27 years ago, and Gail Daniel has managed it for almost that entire time.

She was in charge when the fund launched in 1994, then moved on to a different portfolio around 2000.

Daniel returned to the role in 2003 and has managed the fund ever since, making her one of South Africa’s longest-serving portfolio managers on a single fund.

Ninety One Managed Fund’s performance has been outstanding, with an annualized return of 12.5% over the last 20 years.

Speaking at the Morningstar Investment Conference in Cape Town, Daniel said she was concerned about the growth rate local equities can sustain.

There are also questions as to whether the changing economic environment is fully discounted in share prices.

“Corporate South Africa, over a long period of time, has been a relatively cushy place, and that is altering,” she said.

Daniels believes many South African businesses across industries enjoy unsustainably high margins, opening the door for competitors to disrupt them.

For example, Santam and Outsurance have operating margins higher than many of their global peers.

A good example of an industry which was disrupted is banking, where the big four – Absa, FNB, Standard Bank, and Nedbank – enjoyed high margins.

It gave rise to Capitec, which disrupted the market and became the fastest-growing bank in South Africa over the past 20 years.

Another example is Multichoice – which enjoyed some of the strongest pricing power of any pay-TV provider worldwide – which is now constantly losing subscribers to Netflix.

Daniel noted that in the past, many big businesses expanded into the UK, Australia, and the rest of Africa. However, they achieved limited success.

These businesses are now looking at South Africa to attack pockets of fat in industries and sectors with high margins.

Local companies are also competing more fiercely with each other and expanding into sectors that are not native to their business models.

We see banks moving into the insurance space and setting up virtual mobile network operators while the telecoms giants are starting to provide financial services.

Daniel added that because labour costs are cheap in South Africa, businesses tend to over-employ enormously. Companies hire a lot more workers than needed with low productivity.

Labour unions also fiercely resist the implementation of automation that would lead to job losses. This leads to poor operating cost structures in businesses.

Gail Daniel’s views on Regulation 28

Daniel called the amendment to Regulation 28 of the Pension Funds Act “the most wonderful gift we were given”.

It gave her team a great opportunity to diversify their portfolio and construct a portfolio with proper asset allocation.

However, there are also risks associated with the amendments to the Pension Funds Act.

Daniel is concerned that changes to Regulation 28 may put pressure on retirement funds to invest in local infrastructure projects.

She is especially concerned about the fact that costs in this sector are particularly high and non-transparent.

BEE regulations also lead to expensive procurement that drains capital from the system.

Daniel previously said she would always run her fund’s international exposure as full as she could because of the many options in offshore markets.

“They are bigger, and liquidity is so much better. I don’t think there’s a great structural case for local equities,” she said.

“Local equities have underperformed for a long time. Whichever way I cut it, I can’t get to a reasonable growth scenario for South Africa.”

Daniel believes that if she had the freedom to put any allocation on her asset classes, only 10% to 15% should be in South African equities.

Ninety One Managed Fund portfolio

Ninety One Managed Fund is run as a balanced fund. The table below provides a breakdown of the fund’s share portfolio on 30 June 2022.