In it for the long haul

The fund aims to cre­ate long-term wealth for in­vestors. Its goal is to out­per­form the av­er­age re­turn of South African Gen­eral Eq­uity Funds over the long term, with­out tak­ing on a greater risk of loss.

Finweek English Edition - - In Brief - By Niel Jou­bert

Fund man­ager in­sights:

The Al­lan Gray Eq­uity Fund is for in­vestors who are look­ing to cre­ate long-term wealth by in­vest­ing in shares. His­tor­i­cally, eq­ui­ties have been the best way to gen­er­ate real re­turns, says An­drew Lap­ping, chief in­vest­ment of­fi­cer of Al­lan Gray.

The fund’s re­turns are likely to fluc­tu­ate sig­nif­i­cantly over the short to medium term, but this should not con­cern long-term in­vestors, says Lap­ping. Ac­cord­ing to him in­vestors should also be com­fort­able with price volatil­ity. “One of the most com­monly ap­plied def­i­ni­tions to risk in in­vest­ing is that of equat­ing risk to volatil­ity and at Al­lan Gray, we de­fine risk as the prob­a­bil­ity of a per­ma­nent loss of cap­i­tal,” says Lap­ping.

“We man­age this risk by buy­ing as­sets that we con­sider to be priced be­low their in­trin­sic value and sell them when we think they have reached their worth – re­gard­less of pop­u­lar opinion.”

Ac­cord­ing to Lap­ping, sen­ti­ment to­wards South Africa gen­er­ally, and the eq­uity mar­kets in par­tic­u­lar, is sink­ing steadily lower. Eco­nomic growth has slowed with the end of the com­mod­ity boom and gov­ern­ment pol­icy un­cer­tainty is dis­cour­ag­ing both lo­cal and for­eign in­vestors.

The lo­cal eq­uity mar­ket has re­mained prac­ti­cally un­changed over the past three years, as earn­ings have gen­er­ally un­der­shot ex­pec­ta­tions.

“But, for the first time in many years, we are be­gin­ning to find op­por­tu­ni­ties in cer­tain do­mes­tic con­sumer busi­nesses out­side fi­nan­cial ser­vices,” says Lap­ping.

With re­gard to the fund’s in­vest­ment phi­los­o­phy, he ex­plains that “we spend our time valu­ing busi­nesses”.

“We then com­pare the price the mar­ket places on those busi­nesses to what we think they are worth. We look to in­vest in the busi­nesses that are un­der­val­ued by the mar­ket. The mar­ket can some­times mis­price as­sets by fo­cus­ing on short-term is­sues or not fully un­der­stand­ing the busi­ness. We look to take ad­van­tage of th­ese op­por­tu­ni­ties.”

He says they do not con­sider the bench­mark, which means their port­fo­lios are of­ten very dif­fer­ent.

“And, most im­por­tantly, if we think a share is ex­pen­sive, no mat­ter how large this share is in the bench­mark, we will not own it. This helps us pro­tect our in­vestors from per­ma­nent cap­i­tal losses,” Lap­ping ex­plains.

Why fin­week would con­sider adding it:

The fund has cre­ated wealth for its long-term in­vestors. Since in­cep­tion and over the lat­est 10- and five-year pe­ri­ods, it has out­per­formed its bench­mark. Its re­turns have also ex­ceeded con­sumer in­fla­tion by a sig­nif­i­cant mar­gin.

The max­i­mum draw­down and low­est an­nual re­turn numbers show that the fund has suc­cess­fully re­duced down­side risk in pe­ri­ods of neg­a­tive mar­ket re­turns. ■

Newspapers in English

Newspapers from South Africa

© PressReader. All rights reserved.