2026 has been a crazy year, in general life as well as investment markets. The JSE All Share Index started the year off strongly but has given up all of its gains to be down 3% as at the end of June. Given this backdrop we are pleased with the year-to-date return of 5.1% for the Baobab SCI Flexible Fund, having avoided the weakness in most large components of the index.
The complex macro environment, in combination with persistent speculation and stretched valuations in some areas, does provide an ongoing challenge. Our simple response to the environment is to remain disciplined and stay in our lane. That means investing in cheap companies that we understand, leaving the momentum and narrative chasing to others. One company that wandered into our lane at the end of the quarter was Prosus. Despite being such a large part of the local index we have not owned Prosus or Naspers for many years. The strength and narrative around semi-conductor stocks has sucked capital out of Chinese shares, leaving Tencent trading at an attractive valuation and providing a good entry point into Prosus. It also fits well into our basket of high quality emerging market shares that we have been able to buy at attractive prices in recent months. Other holdings in this basket include Kaspi and Nu Bank.
Not much has been going right at Afrimat of late. Despite the operational challenges we still rate management highly and think the aggregates business provides solid support. At current prices we see plenty of optionality should other parts of the business get “less bad” and we have re-initiated a position in this company which we have owned and sold in the past.
Software stocks are another area that was previously too richly priced to really interest us. 2026 has seen a sharp selloff across the whole sector given the very real threat that AI poses to many companies going forward. The extreme weakness enabled us to re-enter a position we last bought during Covid. We think Par Technology will survive the AI onslaught and have been monitoring the execution and progress of the company and quality CEO since we sold it 5 years ago.
Our active approach to stock selection has been rewarded this year with key contributions coming from Seaport Entertainment, People Inc, Glass House Brands and Glencore. Long-term core holding Bollore has had a solid year and management has been very active. At the end of the quarter the company paid a special dividend of over 30% of the market capitalisation, a big portion of which will flow back to them via the holding company structure. This will enable the very astute owner managers to add value through further buybacks or corporate activity at what remains a very depressed valuation.
Looking ahead we expect the environment to remain challenging and volatile. We will continue to balance the ongoing macro risks with the selective opportunity we are still finding at an individual stock level. Through all of this we remain confident that a disciplined and sensible approach will continue to produce the desired long-term returns.