All smiles for four-time win­ner

Weekend Argus (Saturday Edition) - - GOODHANGOUTS -

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.

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