Page 30 - Waterfall City August Issue 2023

Waterfall City News

As bottom-up investors, we believe hold true at the individual company opportunities, which we believe will
there are advantages to be had level, as management can be skilled serve our clients well into the future.
by buying quality companies at a at exploiting as yet untapped
discount to fair value. That is why our opportunities, increasing efficiencies By extension, we believe that
3M investment process is grounded or taking market share from weaker investors wanting to enter markets
in thorough research and an in-depth rivals. Conversely, in an abundant that are expensively valued should
understanding of the return drivers of growth environment, companies may always apply a due level of caution
each company we invest in. channel funds into less productive that they are not paying a premium
areas that do not translate into for assets that may be due for
We understand that many quality bigger company profits. a reversion closer to the mean,
companies are adept at creating therefore putting their investments
returns even under harsh conditions. Who would have thought that on a on the backfoot from a long-term
In fact, our process, which includes a one-year view, SA industrials would return perspective.
focus on the moat (barriers to entry lead the pack with a return of 32.0%
and business model) and quality (for the period ended 30 April 2023), We focus on each company’s business
of management, helps us identify even ahead of the return earned by model and ensure that we buy into
businesses that can compete and take global equities (in rand) at 19.3%? companies at a decent ‘margin of
market share from competitors, even if safety’ (discount), which allows us
opportunities in their existing markets The point is that there are dangers to improve the odds of our clients’
are slim. This is especially relevant to assuming that a low-growth long-term investment success. By
in the local market, where business environment equals a dearth doing so, we believe we can deliver
conditions are notoriously tough. of investment opportunities, or on our clients’ need for real wealth
conversely, that every ‘high growth’ generation in the long-term.
However, from a broader perspective, investment will pay off. We have
our 3M process also means we are recently made similar arguments The success of our long-term strategy
fundamentally ‘valuation cognisant’. In about investing in the Japanese was recently affirmed when PSG
our view, ‘investing at any cost’ thinking market: despite the well-worn story of Asset Management was named as the
is more likely to result in long-term economic malaise, we have been able South African Manager of the Year at
disappointment than a more value- to identify a few select investment this year’s Raging Bull awards.
conscious approach.

How a bottom-up approach Selected outperforming industrial shares in PSG Asset
helps us to look beyond Management portfolios
prevailing narratives
Given poor fundamentals and
overwhelmingly negative sentiment
about the South African market, many
would be tempted to write off local
investments altogether. And yet, the
prevailing narrative obscures the fact
that economic growth (good or bad)
does not equate directly to company
performance.

What might hold true at the Sources: PSG Asset Management and Bloomberg
aggregate level does not always

28 Waterfall City Issue 8 2023