Johannesburg - For the first time since taking charge of Investec's Value Fund in April 2000, leading fund manager John Biccard has removed any exposure to big four banking stocks and major retail groups.
However, the fund remains a holder of Investec and African Bank.
Biccard attributed the decision to a rise in the valuations of these counters. Banking stocks are now trading at 15 times historic earnings, and major retailing groups at 15 to 20 times.
"The outcome today for 'SA Incorporated' stocks needs to be very good to even come close to justifying the current ratings," said Biccard.
Biccard is not the only local asset manager who sees no value in banking stocks. Francois du Plessis from Vega Asset Management told Fin24.com that, apart from Standard Bank, his fund does not look at any of the big four.
Another value manager, Piet Viljoen from RE:CM, also retains a low weighting toward banks in his Flexible Fund. Of the big four, Standard Bank comprises 1.31% of the portfolio while FirstRand makes up just 0.9%.
Viljoen was also a seller of Woolworths, ditching nearly R17m worth of shares. Woolworths now comprises around 0.6% of the portfolio. He reduced exposure to JD Group as well, but added a holding of Pick n Pay which makes up about 4.5% of the portfolio.
Simon Fillmore from Independent Securities, however, cautioned that another factor has to be taken into account, particularly when looking at the retailers. He said foreigners now own more than 60% of a stock like Massmart. "Prices look cheap to them compared to global peers, but to us as local investors they do not look cheap."
He said international investment banks have upped their price targets on the likes of Woolworths (currently 2 319c) and Shoprite (8 000c) to above 3 000c and 9 000c respectively.
Fillmore is more upbeat about banks, saying that as they reduce their bad debt provisions, they can expect another 10% to 20% to earnings growth over 2011.
"They look cheap on our models," Fillmore said.
Tim Allsop is another local asset manager with limited exposure to banks and retailers in his Rainmaker fund. At the end of the March, it featured only Standard Bank and Investec, with the manager electing to reduce exposure on both positions. In terms of retailers the fund reduced its holdings in Shoprite and Spar, but added to its Steinhoff holding.
Biccard added more resources stocks to his fund. He warned it should not be seen as a sector call, but rather the purchase of four individual stocks that happen to be in the resources sector.
"Having underperformed, these shares are now offering great medium-term value. Our holdings in Sasol, Goldfields, Sappi and ArcelorMittal SA provide exposure to rand hedges at a low cost. They also take advantage of situations where we believe shorter-term problems, such as productivity in SA gold mining and the dispute with Kumba in the case of ArcelorMittal, are overly discounted in current share prices."
Stockbrokerage Imara SP Reid, however, shows some disagreement with Biccard's assessment. The firm has an "add" recommendation on Gold Fields, FirstRand and Standard Bank. It also has a "sell" recommendation on ArcelorMittal SA as it awaits clarity on the firms supply agreement dispute, and a "hold" recommendation on Sasol.