A pos­i­tive re­sult in neg­a­tive ter­ri­tory

Weekend Argus (Saturday Edition) - - GOODHANGOUTS - Rag­ing Bull Award for the Best For­eign (South African-domi­ciled) Eq­uity Fund – the top-per­form­ing fund on straight per­for­mance in the for­eign eq­uity gen­eral sec­tor over three years to De­cem­ber 31, 2009

Good stock picks and cur­rency de­ci­sions con­trib­uted equally to the per­for­mance that earned Al­lan Gray the Rag­ing Bull Award for the best rand­de­nom­i­nated for­eign gen­eral eq­uity fund over three years. This is the sec­ond year in a row that the Al­lan Gray-Or­bis Global Eq­uity Feeder Fund has won this award.

The fund re­turned 2.55 per­cent a year over the three years to the end of De­cem­ber last year (ac­cord­ing to Pro­fileData), whereas all the other funds in the for­eign gen­eral eq­uity sub-cat­e­gory made losses.

The sub-cat­e­gory bench­mark, the Mor­gan Stan­ley Cap­i­tal World in­dex, showed mi­nus 6.24 per­cent a year over the three-year pe­riod.

The Al­lan Gray-Or­bis Global Eq­uity Feeder Fund ac­cepts your in­vest­ment in rands and feeds them into the Or­bis Global Eq­uity Fund.

Or­bis is Al­lan Gray’s global as­set man­age­ment part­ner, shar­ing its founder and fol­low­ing a sim­i­lar in­vest­ment phi­los­o­phy.

Like Al­lan Gray, Or­bis in­vests in shares that of­fer a mar­gin of safety: those of com­pa­nies that trade at a dis­count to what the man­ager re­gards as their in­trin­sic value. This pro­vides some pro­tec­tion against the risk of cap­i­tal loss when mar­kets turn against in­vestors.

The Or­bis Global Eq­uity Fund (the fund in which the feeder fund is in­vested) was the sec­ond-best­per­form­ing fund (af­ter the RE:CM Global Fund – see over three years to the end of De­cem­ber among the 37 off­shore global eq­uity funds mar­keted in South Africa. It re­turned 2.28 per­cent a year in rand terms over the three years to the end of De­cem­ber last year.

Over the five years to the end of De­cem­ber, the Or­bis Global Eq­uity Fund was the top per­former (re­turn­ing 14.07 per­cent a year) among the off­shore global eq­uity funds reg­is­tered in South Africa.

HOW THE FUND DID IT

Chris du Toit, an an­a­lyst at Al­lan Gray who is in­volved in Or­bis client ser­vice in South Africa, says that over three years, roughly half the fund’s out-per­for­mance was a re­sult of the shares it se­lected and half was a re­sult of the man­age­ment of the cur­ren­cies to which the fund was ex­posed, he says.

Or­bis’s in­vest­ment ap­proach is to pick stocks it be­lieves are likely to ap­pre­ci­ate within a three-to five-year pe­riod. Shares are se­lected across eq­uity mar­kets, without re­gard for the re­gions or cur­ren­cies rep­re­sented in the fund.

How­ever, Or­bis recog­nises that ex­change rate fluc­tu­a­tions can in­flu­ence in­vest­ment re­turns and so it re­searches cur­rency val­u­a­tions and trends. Af­ter mak­ing its share se­lec­tion, it eval­u­ates the cur­rency ex­po­sure of the fund in light of th­ese val­u­a­tions and ex­pected trends.

Du Toit says in 2008 the fund had an ex­po­sure of about 30 per­cent to shares on the Ja­panese stock mar­ket, but de­cided to take an ad­di­tional po­si­tion on the yen, which had been weak­en­ing against other ma­jor cur­ren­cies since 2004.

Or­bis used for­ward con­tracts to in­crease its ex­po­sure to the yen. The bet paid off when the credit cri­sis forced many in­vestors to re­pay their yen-based bor­row­ings and the cur­rency strength­ened by about 19 per­cent against the US dol­lar.

Last year, the se­lec­tion of shares was the main rea­son the fund out­per­formed its peers. Du Toit says it was over­weight in tech­nol­ogy shares, such as Sam­sung, Google and Microsoft, as well as other large US-listed com­pa­nies, such as phar­ma­ceu­ti­cal multi­na­tional John­son & John­son and health in­surer Wel­lpoint.

The fund also ben­e­fited from a large ex­po­sure to shares in Asian coun­tries such as China.

When its share hold­ings are com­pared with its bench­mark, the fund is still find­ing se­lected large-cap US-listed com­pa­nies at­trac­tive, and is over­weight in Ja­panese and other Asian coun­tries’ shares, Du Toit says.

For in­vestors in other parts of the world, di­rect in­vest­ment in the Or­bis Global Eq­uity Fund is re­stricted to ex­ist­ing in­vestors. New and ex­ist­ing South African clients can con­tinue to in­vest via Al­lan Gray. – Laura du Preez

Chris du Toit of Al­lan Gray with the award for the Al­lan Gray-Or­bis Global Eq­uity Feeder Fund.

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