A positive result in negative territory
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.