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Cannon Biathlon Fund

Mar 9

Written by: Cannon Asset Managers
Tuesday, March 09, 2010

Cannon Biathlon Fund

Monthly Commentary

October 2009

The Cannon Biathlon Fund is managed through an investment process that avoids expensive equity markets by selling and reverting to cash then captures equity exposure when the market is cheap. While we believe short-term market timing often is a futile exercise, it remains the case that tactical (or marginal) tilts between the assets classes can enhance investment results.

During the course of October, the fund retained the asset allocation at 75% equities and 25% cash. This contrasts to earlier parts of this year in which we held a full-invested position in equities. This increase in cash exposure is explained by the recent strong equity market performance. Inside of equities, the fund is overweight the resources sector and slightly underweight industrial and financial stocks relative to the FTSE-JSE All Share Index.

Although the resources sector has been under pressure since 2008, we are invested in a concentrated and carefully considered basket. Included in this set is Mondi plc, which we acquired at a healthy discount to net asset value. Consolidation in the paper and packaging industry, brighter economic prospects and Mondi’s competitive cost advantages stand the firm in good stead. We also have recently included Hulamin to the portfolio. The firm is a world-class producer of aluminium products and is compellingly priced given evidence of the firm’s earnings power, the quality of the management team and prospects for the sector.

In the case of financials we have maintained our position in Old Mutual, which after a particularly stressful 2008 and early 2009, has performed superbly. Even after this strong price action, our analysis shows embedded value of R20 per share, which is 40% above the stock price. The industrial sector appears expensive relative to the financial and resources sectors. Still, we have found compelling opportunities. One example is Group Five, which we purchased in August. This acquisition represents our first move back into the building and construction industry since 2007. Our view is supported by the fact that the company has grown earnings despite the economic slowdown and boasts a healthy business pipeline. In its most recent results Group Five reported growth in operating profit of 25 percent and return on equity of 23.5 percent. Aversion to the sector over the last two years has meant that we were able to buy Group Five at attractive levels.

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1 comment(s) so far...

Re: Cannon Biathlon Fund

the data used for this blog is 2009. How about sharing your performance into 2010?
Thank You
Graham

By Graham on Sunday, May 23, 2010