All smiles for four-time winner
December 31 last year among the domestic prudential high equity, medium equity, low equity and variable equity funds.
On straight performance, the Balanced Fund returned 17.52 percent a year over the five-year period.
The fund was not the topperforming asset allocation fund over this period or even the topperforming prudential variable equity fund over this period on straight performance. But lower risk and more consistent returns resulted in its collecting the Raging Bull Award in this category.
Allan Gray fund manager Delphine Govender says the past five-year period starting in 2005 included a meaningful equity bull market that peaked in May 2008. During that period, the fund’s bottom-up asset allocation and its stock-picking led to its good performance.
Govender says a move that paid off for the fund over the five-year period was a decision to hedge its equity exposure in the later stages of the bull run, when the market started to look expensive.
Allan Gray had invested in shares quite different to those in the All Share index (Alsi) – mostly more defensive stocks – and felt confident that the returns from these stocks would outperform the market’s return, she says.
In late 2006, as the market as a whole started to become fully valued, the fund sold Alsi futures as a hedge against its equity holdings.
Govender says Allan Gray started closing off its hedged position during 2008 as the market began to decline sharply, thereby generating some good returns for the fund. The hedge was fully closed by late 2008.
The fund then started increasing its exposure to mostly global equities that were relatively cheap, she says. (The fund can invest as much as 20 percent offshore.)
Local equities in the fund, being defensively positioned, served the fund well in 2008 but underperformed last year because the rally in 2009 was largely in more cyclical shares.
Over the past year, Allan Gray has altered the weighting of the shares in the equity component of the fund. But the top 10 shares in which the fund was invested at the end of last year were largely the same as the ones that were its top 10 at the end of 2008, Govender says.
Allan Gray has now reduced its exposure to equities, because the manager is not very optimistic about shares. At the end of last year, the local and foreign equity component within the fund was below 60 percent. A large portion of the fund, 22.5 percent, was in the money market or cash.
The fund held no local listed property shares at the end of last year, because relative valuations were also not appealing, she says. – Laura du Preez
Rob Dower, the chief operating officer of Allan Gray, with the award for the Allan Gray Balanced Fund.