Old Mutual pumping money into these companies

While it has not sold out of financial institutions completely, it has reduced its exposure to South African banks that are heavily reliant on local economic growth for continued expansion. 

It remains invested in banks such as FirstRand that have a history of good returns throughout difficult environments and firms that have a promising growth story, such as Discovery, through its new banking offering. 

In other sectors, it has snapped up shares in clothing retailers that it expects to benefit from a shrinking Edgars, such as Truworths, Foschini, and increasingly Woolworths. 

OMIG’s head of equity research, Meryl Pick, explained that these companies are set to benefit from a survivorship factor in the coming years as competitors come under pressure from a stagnant economy. 

This factor is a major driver of strong returns in the construction sector, with the companies left standing, such as WBHO, picking up record order books as their competitors have folded. 

Pick said South African equities have not quite shaken off the fear surrounding increased tariffs on global trade in the same way as their global peers. 

“US equities remain very highly valued, perhaps overvalued, as they shirk off potential fiscal risk affecting the American government and the dollar. US multiples remain resilient,” Pick said. 

With South African assets not quite behaving the same way, investors in the local market have to approach things differently 

“If we look at what we are holding in the South African equity space, banks and clothing retailers still make up the most of our holdings,” Pick said. 

“We have had to be quite selective with holding shares that have historically quite high returns on equity, like FirstRand, and have a track record of delivery, or see if there is a specific case and story surrounding a company like WBHO.”

Pick explained that WBHO has a specific story not because the company is shooting the lights out, but because it has been very good at picking up the pieces from the collapse of its competitors. 

“WBHO has a record order book, not because South Africa is doing record levels of infrastructure spending, but because all the other construction companies have folded.” 

At a company-specific level, they are just cleaning up market share and growing their topline and bottomline in that way. 

Pick said a similar story is emerging with Woolworths and other retailers exposed to clothing, with the downscaling of Edgars opening up significant space for growth. 

“So there can be a market share story in the absence of growth. We are trying to find out who the players are who will thrive in an environment where it is all about survival of the fittest.” 

The pivot to resources

One area where Pick said the firm has been reducing exposure is South Africa’s financial sector, with it preferring to allocate capital towards resource companies. 

“You cannot do just a broad brush stroke or favour a particular sector when there is no rising tide to lift all boats from economic growth,” Pick said. 

“So, for example, we are underweight the banking sector versus the benchmarks, despite knowing that they are cheap.” 

South African banks are trading at one standard deviation cheaper than their historic multiples, offering significant potential upside. 

“A rerating of bond yields could help, but you need to see GDP growth to drive their South African businesses, which is not forthcoming.” 

The level of loan growth in South Africa is sitting in single-digit territory as the country’s economy has largely stagnated over the past 15 years. 

As a result, Pick said the firm is looking to reduce exposure to local banks except in specific cases, such as FirstRand, with its history of delivery, and Absa, which has a compelling turnaround story.

“While we are now underweight banks and financials, we were overweight them at the end of 2025. So, there has been a shift out of banks and broader financial institutions.”

This shift out of financial services has been coupled with rising exposure to resources, which began at the end of 2024. 

These companies are set to benefit from rising commodity prices, particularly PGMs and gold, and provide some protection from a tariff-induced downturn as they are exempt from current duties. 

The sectoral allocation of OMIG’s Investor’s Fund, which is broadly similar to all the firm’s equity portions, can be seen in the graph below in comparison to the benchmark allocations.

Issued on Daily Investor by Shaun Jacobs | https://dailyinvestor.com/investing/96254/old-mutual-pumping-money-into-these-companies/