From Gary Booysen on the top floor,

Dear Money Morning Reader,

If capital growth is your goal then take a leaf out of Shaun Le Roux’s book. His fund, the PSG Alphen Growth Fund, over 12 months, holds pole position out of 65 other funds in its sector and manages to come in 6th out of 454. In fact, at the end of November 2009 he was up 40.9% – Easily out performing the JSE All Share Index.  And what makes it truly spectacular is that he has not loaded up on risk as through out 2009 his majority holding were solid blue chips.

What’s his secret?

Well a string of letters after his name does not alone make a brilliant stock picker. But, Shaun Le Roux CA(SA) CFA is one stock picker you should listen too. He cut his teeth at Ernst & Young and then spent two years at JP Morgan in London. After that he joined PSG in 1999 and never looked back.

Last year he favoured the likes of Steinhoff, Tiger Brands, BAT, MTN, Naspers and Anglo. And, as with all successful investors, he listened to the time honoured axiom: Buy value when others are fearful. But in his own words: “It was a hell of a lot easier in March and April last year.”
At PSG’s Aspen Growth fund, whose mandate is to “provide outstanding capital growth and to deliver consistent upper quartile returns within an acceptable risk profile”, is now closed to the public but where is this high finance hot shot going to put his money next year?

“Le Roux is taking a much more cautious approach entering 2010”, says Shaun Harris in Finweek. Le Roux believes: Get out of resources and into the defensives. “Resources are cyclical and earnings are difficult to see.” When the money comes flooding out in the next momentum shift it’s the defensives that will run.

A small cap punt for 2010

In the spotlight this week is the Old Mutual Small Companies Fund.

“By definition, an overvalued stock has a larger market capitalization than would otherwise be the case”, says Robert D. Arnott, editor of the Financial Analysts Journal and chairman of Research Affiliates. He believes that “Its price-to-book ratio is also higher, and thus it is closer to the growth end of the growth-value spectrum. Portfolios of large growth stocks will contain a disproportionate number of overvalued issues, and should, on average, lag behind the market.”
That means there is a powerful argument towards smaller JSE listed entities. Statistics show that, traditionally, small caps out perform the larger listed companies. And it makes intuitive sense. Why shouldn’t “lean up-and-comers” out perform (rand for invested rand) the lumbering giants the JSE Alsi top 40?

And now with the Alsi is up 54.84% since its March lows almost a year ago while at the same time the JSE Small Cap Index is only up 43.67%. There is an opportunity to make significant gains.
One fund that will take advantage is the Old Mutual Small Companies Fund. This is a local fund which currently allocates 92.95% of its assets to domestic equity falling outside the JSE. The fund holds the balance in South African rand. It only invests in established firms and has “an emphasis on shares showing growth potential which has not been realised.” So far it’s put on 21.58% over the last year with the majority coming from price gains rather than income.

This is a higher risk fund but has the potential to really deliver outstanding gains. For more information visit www.oldmutual.co.za or call 0860 50 60 70.

Turning to the markets...

The JSE all share index closed up 0.43% yesterday. The gold mining index rose 0.5%. Resources gained 0.42%. Banks and financials increased 0.12% and 0.23% respectively. Industrials added 0.53% down and the platinum mining index soared 1.07%.

London’s FTSE100 closed down 0.57%. The Dow Jones decreased 0.26% and the Nasdaq added 0.04%.

Tokyo’s Nikkei closed 0.8% down. Hong Kong’s Hang Seng shed 1.55%.

Brent crude is currently trading at $75.94 per barrel.

Spot gold’s trading at $1,110.26 and platinum was last quoted at $1,588.

And here’s how the rand is performing against the major currencies:
R/$7.53
R/£11.98
R/€10.46