Al­lan Gray is best do­mes­tic com­pany for a sec­ond year

Weekend Argus (Saturday Edition) - - GOODHANGOUTS - LAURA DU PREEZ

Al­lan Gray won the cov­eted Rag­ing Bull Award for the Do­mes­tic Man­age­ment Com­pany of the Year for the sec­ond year in a row at this week’s Rag­ing Bull Awards.

The man­ager also col­lected Rag­ing Bull Awards for the per­for­mance of two of its eight funds – its as­set al­lo­ca­tion pru­den­tial fund and its for­eign eq­uity gen­eral fund.

Al­though it has won a num­ber of Rag­ing Bull Awards in the past, Al­lan Gray qual­i­fied for in­clu­sion in the man­age­ment com­pany rank­ings for the first time at the beginning of 2008 and was thus el­i­gi­ble for the man­age­ment com­pany award for the first time last year.

Man­agers need to have at least one fund with a three-year track record in four dif­fer­ent unit trust sec­tors (do­mes­tic as­set al­lo­ca­tion, do­mes­tic eq­uity gen­eral, do­mes­tic fixed in­ter­est and for­eign eq­uity gen­eral) be­fore they can qual­ify for the award.

Since

Al­lan

Gray’s

funds ob­tained the re­quired track record and it be­came el­i­gi­ble for in­clu­sion in the man­age­ment com­pany rank­ings, it has been first in the rank­ings for seven of the eight quar­ters, drop­ping to sec­ond place only in the third quar­ter of 2008. Al­lan Gray’s “val­u­a­tion-based” in­vest­ment ap­proach is to tar­get shares that are trad­ing well be­low what the com­pany be­lieves are their in­trin­sic value (or the value a pru­dent busi­ness­man would pay for them) and ear nings po­ten­tial. As Al­lan Gray in­vests when shares are out of favour, its port­fo­lios of­ten dif­fer greatly from the bench­marks for the port­fo­lios. But when the prices of th­ese shares re­turn to fair value, the shares can de­liver good long-term re­turns. When the shares’ mar­ket price equals their in­trin­sic value, Al­lan Gray will typ­i­cally sell them.

As its in­vest­ment ap­proach in­cludes a mar­gin of safety, Al­lan Gray’s per­for­mance rel­a­tive to that of other man­agers is par­tic­u­larly strong dur­ing pe­ri­ods char­ac­terised by mar­ket down­turns, such as the se­vere one of 2008.

STRONG AS­SET AL­LO­CA­TOR

Al­lan Gray’s skill in manag­ing as­set al­lo­ca­tion funds is ev­i­dent in the PlexCrown rat­ings on which the man­age­ment com­pany of year award is based.

The man­ager also won a Rag­ing Bull Award for its Bal­anced Fund, which is in the do­mes­tic as­set al­lo­ca­tion pru­den­tial medium eq­uity sub-cat­e­gory.

Al­lan Gray is what is known in the as­set man­age­ment in­dus­try as a bot­tom-up man­ager, and it at­tributes its suc­cess at manag­ing as­set al­lo­ca­tion funds to this ap­proach. This ap­proach means that within the con­straints of the in­vest­ment man­dates of its dif­fer­ent funds, Al­lan Gray will look for shares or other se­cu­ri­ties that are priced be­low their in­trin­sic value.

At times there may be enough of th­ese shares to in­vest al­most the en­tire fund or eq­uity port­fo­lio in shares. But at other times the rest of the port­fo­lio (within the man­date and unit trust cat­e­gory con­straints) will be moved into cash un­til the right op­por­tu­ni­ties arise.

Al­lan Gray be­lieves this bot­tomup ap­proach is more suc­cess­ful than try­ing to pre­dict which mar­kets and mar­ket sec­tors will per­form well.

Many fund man­agers make what are known as top-down as­set al­lo­ca­tion calls, be­cause they de­cide how much of the fund to al­lo­cate to each as­set class be­fore they look for op­por­tu­ni­ties within the as­set class.

De­spite manag­ing more than R200 bil­lion, Al­lan Gray still runs only eight unit trust funds.

Two of its funds are not rated in the PlexCrown rat­ings: the Money Mar­ket Fund and the Op­ti­mal Fund, which is classified as a do­mes­tic as­set al­lo­ca­tion tar­geted ab­so­lute and real re­turn fund. This sub-cat­e­gory in­cludes a di­verse range of funds the per­for­mance of which is not re­ally com­pa­ra­ble, and hence the sub-cat­e­gory is ex­cluded from the PlexCrown rat­ings.

Among the six funds that were rated in the PlexCrown rat­ings, Al­lan Gray has four that each achieved the high­est rat­ing of five PlexCrowns. Th­ese funds were Al­lan Gray’s two do­mes­tic as­set al­lo­ca­tion funds and its two for­eign funds, which in­vest in un­der­ly­ing funds man­aged by Al­lan Gray’s off­shore part­ner, Or­bis.

Al­lan Gray’s do­mes­tic eq­uity gen­eral fund and its do­mes­tic fixed­in­ter­est bond fund both achieved the sec­ond-high­est PlexCrown rat­ing of four crowns each.

Once the rat­ings for do­mes­tic cat­e­gories were av­er­aged to give the man­ager an av­er­age score for the man­age­ment of all its do­mes­tic funds, Al­lan Gray was in first po­si­tion among the com­pet­ing man­agers. Sim­i­larly, the av­er­age of its scores in the for­eign cat­e­gories put it in first po­si­tion among its peers.

Al­lan Gray was also first or joint first in the do­mes­tic as­set al­lo­ca­tion rank­ings, the for­eign eq­uity rank­ings, and the for­eign and world­wide flex­i­ble rank­ings.

RUN­NER-UP

Pru­den­tial Port­fo­lio Man­agers was the run­ner-up to Al­lan Gray in the man­age­ment com­pany of the year rank­ings. Pru­den­tial has been run­ner-up to Al­lan Gray for six quar­ters in a row now.

Pru­den­tial is a “pru­dent value in­vestor” that iden­ti­fies mis-priced as­sets, while be­ing very cog­nisant of the risk that in­vestors are pre­pared to take. It takes a proac­tive view on mar­kets, with the aim of out-per­form­ing the in­dices, its com­peti­tors and inflation over the longer term.

Pru­den­tial has seven funds that are rated in the PlexCrown rat­ings. One fund (the Eq­uity Fund) achieved five PlexCrowns, four funds each re­ceived four PlexCrowns and two funds each earned three PlexCrowns.

Pru­den­tial’s two do­mes­tic eq­uity funds, the Eq­uity Fund (gen­eral sub­cat­e­gory) and the Div­i­dend Max­imiser (value sub-cat­e­gory), both ranked among the top five funds in their sub-cat­e­gories over three and five years. This gave Pru­den­tial a strong av­er­age score for the man­age­ment of do­mes­tic eq­uity funds, where it was ranked third among all com­pet­ing fund man­agers.

The man­ager’s do­mes­tic real es­tate fund, the En­hanced SA Prop­erty Tracker Fund, and its as­set al­lo­ca­tion Pru­den­tial Bal­anced Fund both achieved four PlexCrowns, which also boosted its av­er­age do­mes­tic PlexCrown rat­ing.

NED­GROUP IN­VEST­MENTS

Ned­group In­vest­ments was third over­all. Ned­group In­vest­ments has a much big­ger range of funds, 15, that are rated in the PlexCrown rat­ings. Two funds achieved five PlexCrowns, five achieved four PlexCrown, four achieved an av­er­age three PlexCrowns and four achieved a be­low-av­er­age two PlexCrowns.

Ned­group In­vest­ments out­sources the man­age­ment of its funds to what it re­gards as the “best of breed” man­agers in the mar­ket – of­ten bou­tique man­agers that are skilled in manag­ing a par­tic­u­lar man­date or as­set class.

Ned­group In­vest­ments achieved the sec­ond-high­est av­er­age PlexCrown rat­ing for all its funds that in­vest in do­mes­tic mar­kets.

Con­tribut­ing to this score was its first po­si­tion in the rank­ing of man­agers on av­er­age PlexCrowns for the man­age­ment of do­mes­tic fixed­in­ter­est funds.

The Ned­group In­vest­ments Bond Fund, man­aged by Pre­scient In­vest­ment Man­age­ment, was one of its funds that re­ceived five PlexCrowns. The other was the group’s do­mes­tic eq­uity Value Fund, which is man­aged by Fo­ord As­set Man­age­ment.

Its funds that achieved four PlexCrowns were: the En­tre­pre­neur Fund, the Growth Fund, the Man­aged Fund, the Min­ing & Re­sources Fund and the Rain­maker Fund.

Ned­group In­vest­ments prides it­self in its abil­ity to re­search, se­lect and mon­i­tor the best of breed man­agers. The track records of po­ten­tial man­agers are an­a­lysed to en­sure that only man­agers with a ro­bust in­vest­ment phi­los­o­phy that are ca­pa­ble of con­sis­tently de­liv­er­ing good re­turns through var­i­ous mar­ket cy­cles are cho­sen.

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