Scroll down
Welcome to the fourth edition of Peregrine Capital’s newsletter where we share our views and news about our business, our funds, and why hedge funds should form part of a growing and diversified investment portfolio. This edition includes our perspective of Q3 of 2023, following on the semi-annual investor letter we published in July 2023.
We share regular updates and insights on our LinkedIn page, so please follow us to keep up to date with what we’re working on as we continue to deliver on our purpose to create wealth for our clients.
AJ Snyman, Investment Analyst at Peregrine Capital unpacks the market environment for the third quarter of 2023.
Source: *Peregrine Capital and **Bloomberg for the period between 1 July 2023 – 30 September 2023.
The portfolio continued to build on the momentum from the second quarter of 2022 and delivered a net return of +1.73% for the High Growth Fund and +2.96% for the Pure Hedge Fund*. This compares to the MSCI All Country World Index and the JSE Capped Swix Indices which lost 3.3% and 3.7% respectively**. While evaluating performance over such short time periods is fraught with randomness and bias, we are pleased to have delivered positive returns for our investors when the backdrop was clearly negative for risk assets globally.
Outlook
We are confident that our current portfolio has the ability to generate strong returns for our investors. Our team is intently focused on identifying unique and differentiated opportunities – something we believe the current environment is conducive to, as it creates an attractive hunting ground for bottom-up fundamental investors with a hedge fund toolkit.
Portfolio Construction
In our fixed income sphere, we have reduced our South African bond positions at favorable levels and have started allocating incrementally to select developed market bonds protection against possible recession. At a portfolio level, our net equity exposure reduced towards the end of the quarter. Given where bonds are trading, equity valuations appear to be higher than we would have expected, hence the reduction in exposure where appropriate.
At the end of the quarter, the High Growth Fund had gross exposure of 123% and net equity exposure of 55%. This conservative portfolio exposure positions the Portfolio very well to take advantage of dislocations in asset prices that inevitably result from the sort of market uncertainty that we are currently experiencing.
After a very tough quarter to June for South African companies, positive signs have started to emerge during the third quarter. Loadshedding levels have reduced, and there seems to be a light at the end of the tunnel. Our team has spent a significant amount of time modelling and forecasting our current expectations of electricity supply and demand in South Africa, and we have used this updated information to form views on companies and take positions with higher confidence.
Our team maintains longstanding and deep relationships with all the companies in our coverage. In this sort of environment, these relationships become increasingly important as we spend a significant amount of time trying to understand the current operating environment and use the feedback loop we obtain from companies we interact with to calibrate our expectations and forecasts.
Macro
As we have noted in quarter two, many signs started to emerge which indicated that the back of inflation was starting to break. This has certainly been validated in the third quarter with the pace of inflation slowing across most markets. As such, most Central Banks were also pulling back on the aggressive pace of interest rate hikes. This interest rate-hiking cycle, being the most aggressive in recent history, has exerted pressure on the global economy and the lower-end consumer, and we started to see more signs of this emerging over the course of the third quarter.
Loadshedding levels have reduced, and there seems to be a light at the end of the tunnel.
View our Flagship Fund’s Third Quarter 2023 Performance below:
Want to Learn More About
Our Flagship Funds?
H4 QI HEDGE FUND
Click above to view the longest-running hedge fund in South Africa, designed to offer investment stability and downside protection while growing investors’ purchasing power. The fund aims to deliver returns above inflation over the medium term and has never had a negative year since its inception in July 1998.*
*Please refer to disclaimers at the end of the newsletter.
H4 QI HEDGE FUND
Click above to view why you should continue to invest in Peregrine Capital’s High Growth Fund - the first fund in South Africa to achieve 100X* an investor’s initial investment, so R1 million invested in the fund in February 2000 is worth more than R100 million now.
*Please refer to disclaimers at the end of the newsletter.
Click above to watch Peregrine Capital’s investment philosophy, which is anchored in a fundamental, bottom-up, valuation-focused approach. We continually refine our investment process, although the guiding principles never change. Diligent application of our investment process and industry-leading alignment of interests ensure we remain true to our mission, which is to create wealth for our clients.
Our Investment Philosophy
Is there a place for Hedge Funds in post-retirement investing?
In this Moneyweb podcast, our Head of Distribution, Alan Yates, discusses whether hedge funds have a role to play in post-retirement investing. He explains how hedge funds can give you a very consistent return profile.
Hedge Funds:
Navigating Uncertainty and Capitalizing on Opportunities
Why Hedge Funds Should Be Part
of Your Investment Portfolio
Our Investment Analyst, Anton Smit, wrote an article on why Hedge Funds should be included in your investment portfolio.
He spoke about how South African investors face numerous unanswered questions regarding infrastructure, economic growth, inflation, interest rates, and geopolitical tensions. To navigate these challenges, hedge funds offer flexible investment tools that generate risk-adjusted returns independent of traditional asset classes.
Peregrine Capital launches new brand identity in celebration of its 25th year of business.
FA News covered our logo and corporate identity refresh which we did as part of our 25-year anniversary celebrations. With a contemporary shift to the future the new logo pays homage to our heritage of investing in performance over the past 25 years.
How SA’s Oldest Hedge Fund Pioneer generates those 100x returns
Alec Hogg from BizNews interviewed our Founder and Executive Founder David Fraser as well as CEO and Portfolio Manager Jacques Conradie about our investment approach that led to generating 100X returns. They shared insights into our investment philosophy and strategies, emphasizing the importance of backing strong franchises and conducting thorough fundamental research.
25 Years of Leading the Local Hedge Fund Industry
Our CEO, Jacques Conradie, joined Michael Avery, on Classic Business FM for an interview that unpacks Peregrine Capital's 25-year history as a leading Hedge Fund Manager and the lessons learned along the way.
Peregrine Capital
in The News
Morningstar Investment Conference
In September, Kavita Patel and Alan Yates in our distribution team hosted investors at our stand in September. The conference covered deeper insights and data needed to prepare for what’s next in the investor journey.
Investment Think Tank
In August, our Investment Analyst, AJ Snyman, travelled to Durban, Mbombela, Bloemfontein, Potchefstroom, and Gqeberha, and presented the topic “The Hedge Fund Edge” and answered questions from the audience.
Alternative Investment Conference
In July, our CEO and Portfolio Manager, Jacques Conradie, participated in an industry panel discussion on “Extracting Noncorrelated and Differentiated Return in Times of Market Volatility.”
Financial Mail published an article that covered the panel discussion.
Meet the Managers
In June, our Portfolio Manager, Matthew Thomson spoke at The Meet The Managers 2023 where he discussed “Cutting Correlation: Hedge Funds as Diversifiers in Your Overall Portfolio.” He spoke about the value of uncorrelated assets in generating returns in difficult markets.
Industry Events We Participated
in that You May Have Missed
Maximise your investment potential and gain exclusive insights by reserving your spot at our highly anticipated 2024 Investor Day.
Johannesburg: 08 February 2024 | Cape Town: 28 February 2024
Upcoming Events Where You Can Meet the Peregrine Capital Team
about investing, today.
Hundred
Times
Maximise your investment potential and gain exclusive insights by reserving your spot at our highly anticipated 2024 Investor Day.
Johannesburg: 08 February 2024 | Cape Town: 28 February 2024
Morningstar Investment Conference
In September, Kavita Patel and Alan Yates in our distribution team hosted investors at our stand in September. The conference covered deeper insights and data needed to prepare for what’s next in the investor journey.
Investment
Think Tank
In August, our Investment Analyst, AJ Snyman, travelled to Durban, Mbombela, Bloemfontein, Potchefstroom, and Gqeberha, and presented the topic “The Hedge Fund Edge” and answered questions from the audience.
Industry Events We Participated
in that You May Have Missed
Alternative Investment Conference
In July, our CEO and Portfolio Manager, Jacques Conradie, participated in an industry panel discussion on “Extracting Noncorrelated and Differentiated Return in Times of Market Volatility.”
Financial Mail published an article that covered the panel discussion.
Meet the Managers
In June, our Portfolio Manager, Matthew Thomson spoke at The Meet The Managers 2023 where he discussed “Cutting Correlation: Hedge Funds as Diversifiers in Your Overall Portfolio.” He spoke about the value of uncorrelated assets in generating returns in difficult markets.
Is there a place for Hedge Funds in post-retirement investing?
In this Moneyweb podcast, our Head of Distribution, Alan Yates, discusses whether hedge funds have a role to play in post-retirement investing. He explains how hedge funds can give you a very consistent return profile.
Hedge Funds:
Navigating Uncertainty and Capitalizing on Opportunities
Why Hedge Funds should be part of your Investment Portfolio
Our Investment Analyst, Anton Smit, wrote an article on why Hedge Funds should be included in your investment portfolio.
He spoke about how South African investors face numerous unanswered questions regarding infrastructure, economic growth, inflation, interest rates, and geopolitical tensions. To navigate these challenges, hedge funds offer flexible investment tools that generate risk-adjusted returns independent of traditional asset classes.
Peregrine Capital launches new brand identity in celebration of its 25th year of business.
FA News covered our logo and corporate identity refresh which we did as part of our 25-year anniversary celebrations. With a contemporary shift to the future the new logo pays homage to our heritage of investing in performance over the past 25 years.
How SA’s Oldest Hedge Fund Pioneer generates those 100x returns
Alec Hogg from BizNews interviewed our Founder and Executive Founder David Fraser as well as CEO and Portfolio Manager Jacques Conradie about our investment approach that led to generating 100X returns. They shared insights into our investment philosophy and strategies, emphasizing the importance of backing strong franchises and conducting thorough fundamental research.
25 Years of Leading the Local Hedge Fund Industry
Our CEO, Jacques Conradie, joined Michael Avery, on Classic Business FM for an interview that unpacks Peregrine Capital's 25-year history as a leading Hedge Fund Manager and the lessons learned along the way.
Peregrine Capital
in The News
Our Investment Philosophy
Click above to watch Peregrine Capital’s investment philosophy, which is anchored in a fundamental, bottom-up, valuation-focused approach. We continually refine our investment process, although the guiding principles never change. Diligent application of our investment process and industry-leading alignment of interests ensure we remain true to our mission, which is to create wealth for our clients.
Want to learn more about our flagship funds?
H4 QI HEDGE FUND
Click above to view the longest-running hedge fund in South Africa, designed to offer investment stability and downside protection while growing investors’ purchasing power. The fund aims to deliver returns above inflation over the medium term and has never had a negative year since its inception in July 1998.*
*Please refer to disclaimers at the end of the newsletter.
H4 QI HEDGE FUND
Click above to view why you should continue to invest in Peregrine Capital’s High Growth Fund - the first fund in South Africa to achieve 100X* an investor’s initial investment, so R1 million invested in the fund in February 2000 is worth more than R100 million now.
*Please refer to disclaimers at the end of the newsletter.
View our Flagship Fund’s Third Quarter 2023 Performance below:
Source: *Peregrine Capital and **Bloomberg for the period between 1 July 2023 – 30 September 2023.
Outlook
We are confident that our current portfolio has the ability to generate strong returns for our investors. Our team is intently focused on identifying unique and differentiated opportunities – something we believe the current environment is conducive to, as it creates an attractive hunting ground for bottom-up fundamental investors with a hedge fund toolkit.
Portfolio Construction
excitement around AI-beneficiaries normalise a bit. While one can argue that a lot of the negative sentiment around the outlook for the South African economy is already discounted in the valuation of our local shares, many of the offshore counters are trading at valuations that are at or above fair value. Coupled with the risk of a slowdown in the global economy makes us more cautious on certain pockets of the offshore equity market. As such, we have been utilising the tools at our disposal to implement portfolio hedges to shield the portfolio against potential market drawdowns.
At a portfolio level, our net exposure to equities has decreased during the quarter as some of our shares traded up, closer to our fair value and while we also being intently focused on managing the overall risk of the portfolio, we deliberately reduced exposure to certain sectors. In offshore markets, we have also seen the second quarter’s frantic
As we have noted in quarter two, many signs started to emerge which indicated that the back of inflation was starting to break. This has certainly been validated in the third quarter with the pace of inflation slowing across most markets. As such, most Central Banks were also pulling back on the aggressive pace of interest rate hikes. This interest rate-hiking cycle, being the most aggressive in recent history, has exerted pressure on the global economy and the lower-end consumer, and we started to see more signs of this emerging over the course of the third quarter.
Macro
AJ Snyman, Investment Analyst at Peregrine Capital unpacks the market environment for the third quarter of 2023.
As we head into Q4, the highly-anticipated Medium-Term Budget statement will be reviewed very closely. It is largely expected that the Government is running into a R20-80bn revenue shortfall as corporate tax collections have declined. This creates a tightrope for Minister Godongwana to walk as he balances the revenue shortfall with increasing spending pressures in the face of high inflation. Our team has long held, deep relationships with all the companies we cover. In this highly fluid and uncertain environment, these relationships become increasingly important as we spend a significant amount of time trying to understand the current operating environment and use the feedback loop we obtain from companies we interact with to calibrate our expectations and forecasts to ultimately get to the truth.
The portfolio continued to build on the momentum from the second quarter of 2022 and delivered a net return of +1.73% for the High Growth Fund and +2.96% for the Pure Hedge Fund*. This compares to the MSCI All Country World Index and the JSE Capped Swix Indices which lost 3.3% and 3.7% respectively**. While evaluating performance over such short time periods is fraught with randomness and bias, we are pleased to have delivered positive returns for our investors when the backdrop was clearly negative for risk assets globally.
Welcome to the fourth edition of Peregrine Capital’s newsletter where we share our views and news about our business, our funds, and why hedge funds should form part of a growing and diversified investment portfolio. This edition includes our perspective of Q3 of 2023, following on the semi-annual investor letter we published in July 2023.
We share regular updates and insights on our LinkedIn page, so please follow us to keep up to date with what we’re working on as we continue to deliver on our purpose to create wealth for our clients.
Scroll down