A bet on construction

along with flexible property and industrial funds, the small companies sector proved to be one of the star performers of 2003.

from when the small-cap bubble burst in august 1998 until about two years ago, investors were withdrawing heavily from small-cap shares.

nicole agar, co-manager of rmb emerging companies, says the illiquidity of small companies and the need to raise cash to redeem units pushed small companies to extremely oversold positions.

investors are still sceptical about small caps and this fund has less than r130m, even though its 113% cumulative return over three years was higher than that of allan gray equity, which has grown to more than r3bn.

agar says the first half of 2003 was disappointing for the rmb fund, as it did not have any clothing retailers in its portfolio and because construction shares, in which it has a hefty weighting, just treaded water.

but it maintained a high weighting in construction, anticipating that fixed investment will continue to show strong growth. at least r100bn of government infrastructural spending is expected over the next three years. residential spending will increase, buoyed by rising house prices, and there should be renewed growth in other african countries, such as angola.

iliad remains the largest share in the fund, though it has shot up from a low of 235c to more than 500c, as it is still on a forward p:e of 6 and a forward dividend yield of 5%. its merger with corpbuild has added critical mass and it is geared to the home improvement market, which is sensitive to interest rate cuts.

the fund has maintained a strong rand stance. its main resources share is randgold, which is not suffering from the strong rand. financials include glenrand mib and discovery, along with hefty bets in furniture retailers such as ellerine and jd group (the latter has recently been trimmed back).
pepkor was added before the offer to minorities.