Two top asset managers are reading the smoke signals from British American Tobacco — Reinet’s biggest investment — very differently. Shaun le Roux of PSG Fund Managers believes BAT’s strong track record probably led to investor complacency. "It is unlikely that many analysts spent enough time considering whether the dynamics of the tobacco industry suggested that historic performance was sustainable – and, in particular, if the share’s rating appropriately factored in the range of possible future outcomes," he says. Le Roux argues that the multi-decade bull market in global bonds supports demand for bond-like equities or "bond proxies". This means that companies with growing cash flows and healthy dividends were attractive alternatives to bonds. "When bond yields are low, p:es for bond proxies are high," says Le Roux. "BAT traded at more than 20 times earnings in mid-2016, when the US 10-year bond yield plunged to its lowest levels in more than a century." Le Roux also argues that l...

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