Allan Gray is best domestic company for a second year
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.
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.
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 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.