Meeting Chris Botha, Director, Fund Management, at Illovo-based Imara Asset Management South Africa

  • Q: How did you get involved in financial services? Was it always something you wanted to do?
  • A: I always wanted to do this. It’s exciting. My job changes every day as there is always something new happening in global markets. I have always had a passion for big-picture issues driven by macroeconomic events and trends. This interest predisposes me to work in fund management as these are the main drivers of asset allocation and market performance. Big-picture strategies often underpin my approach to an asset class or sector. For example, in recent years many core holdings in the flagship Imara Equity Fund were selected because macroeconomic themes such as consumer market growth, industrialisation and urbanisation highlighted growth potential within sectors such as resources, construction, retail and financial services. My job at Imara Asset Management SA allows me to put my fascination with major trends to work as the investment process here is characterised by a strong top-down or macroeconomic overlay. Thinking long term and considering major strategic drivers as well as fundamental bottom up research have been the main drivers of consistent above average performance for the Imara Met Equity Fund which has achieved a one-year return of 15.7% and annualised three-year returns of 23.4%.

  • Q: There's a lot of talk about equity markets being overvalued, at fair-value or under-valued. Is this real investment issue and does it affect individual investment decisions?
  • A: Clearly, one’s assessment of value and risk are the overriding issues no matter what the state of the market. That assessment influences all decisions. Markets as a whole are high, but they are not in bubble territory yet. At a time like this, it is important to focus on stock selection. The weaker rand is supporting stellar earnings growth in certain local stocks. The local equity markets is trading on a forward price-earnings ratio of 14.5x, which is spot on its long-term mean, so the JSE is not that over-valued on a 12-month rolling forward basis. The biggest risk is the timing of interest rate hikes in the US as we will also be forced to hike rates locally in order to maintain the foreign funding of our current account deficit. A local rate hike may affect JSE values, but this need not be a major concern for investors with a strategic mind-set who take a three to five year view.

  • Q: What makes a good investment and when do you know it is time to exit an investment?
  • A: I focus on stocks with excellent management through various business cycles, high returns on invested capital and strong, sustainable free cash flows. Once a stock reaches my fair value or target price, fundamentals are reassessed. I often take profits rather than sell a good company outright. However, if the investment case no longer holds, the stock will be sold. For the average retail investor in unit trusts, the focus falls more on portfolio composition rather than the sale or disposal of one specific holding. The issue here is what makes a good fund investment. In general, the client is looking for a well-diversified portfolio across various economic sectors as an effective mechanism for managing risk. Diversification and time in the market make good risk managers. We do not invest in one single theme at a time. A good portfolio will deliver consistent returns over various investment cycles at a reasonable level of risk. A good portfolio should also deliver a high Sharpe Ratio – an indication of excess return per unit of risk.

  • Q: What has been your best – and worst – investment experience?
  • A: My best was identifying the emergence of the growing middleclass in emerging markets as a sustained driver of consumer expenditure and GDP growth, particularly in Asia, India and sub-Saharan Africa. My worst experience was being overly optimistic on commodity stocks on the back of growth in China. Commodities are still in oversupply, so this sector might take a while to recover.

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