There has been a lot of chatter the last week around African Bank (ABIL), and its sudden fall from grace. Now that the news has filtered through the wires, the main question is how this affects you?
A lot of focus has been placed on Coronation Asset Managers, as they are listed as the biggest shareholders of African Bank with 22%. Investors who have exposure to the Coronation funds from far and wide are in a panic as to what effect this shareholding has on their capital.
For example: You have a 20% exposure to the Coronation Top 20 fund (which had a 0.62% position in ABIL on August 6th). ABIL went from R 2.70 to R 0.50 on Thursday the 7th of August. The ABIL share lost 81.48% on that day, but your effective loss for the day (ignoring all other fund and share price movements in your total portfolio) would have been:
0.8148 x 0.0062 x 0.2000 = 0.10%
As you can see the effect on this portfolio is as Coronation themselves put it: “Immaterial”
This whole situation has served as a reminder that when you are exposed to the equity markets, you are exposing yourself to a large amount of risk with the expectation of higher returns. You always need to check yourselves that you do not become complacent with high equity returns as this often causes us to become blind to risk, and that is a dangerous position to be in.
As John Ray once said: “He that cannot abide a bad market, deserves not a good one”
