Financial Mail - Investors Monthly - - Analysis: Balanced Funds -

This fund is a col­lab­o­ra­tive ef­fort in which there are four se­nior port­fo­lio man­agers: chief in­vest­ment of­fi­cer Ian Liddle, Dun­can Ar­tus, An­drew Lap­ping and Si­mon Rauben­heimer. It also gives small por­tions of the port­fo­lio to the less ex­pe­ri­enced as­so­ciate fund man­agers: Ruan Stander, Jac­ques Plaut and Leonard Kruger. Each port­fo­lio man­ager is given full dis­cre­tion on stock se­lec­tion and as­set al­lo­ca­tion.

Allan Gray has un­der­per­formed over the past year, be­ing 3% be­hind the av­er­age of the high eq­uity sec­tor, but over 10 years it re­mains 1,5% ahead. Ar­tus says his­tor­i­cally al­most all the added value (al­pha) has been cre­ated in fall­ing mar­kets. The fund of­ten takes a more con­ser­va­tive stance than its com­peti­tors, and cur­rently has 56% in eq­ui­ties (in­clud­ing for­eign eq­ui­ties), well be­low its per­mit­ted 75%. Its for­eign hold­ings are di­vided be­tween pure eq­ui­ties, mak­ing up 12,4% of the port­fo­lio, and hedged eq­ui­ties (through the Or­bis Op­ti­mal Fund), mak­ing up a fur­ther 11,2%.

The fund is the largest SA unit trust, with R108bn un­der man­age­ment. It fo­cuses pri­mar­ily on large caps. Its largest po­si­tion is in Bri­tish Amer­i­can To­bacco, which ac­counts for 6,4% of the fund, plus a fur­ther 1,6% for Reinet, which re­mains a BAT proxy as that makes up more than 70% of its NAV.

Its top hold­ings change lit­tle, though no­tably over the past two years its large po­si­tion in MTN has been sold and its hold­ing in San­lam switched into Old Mu­tual.

Liddle says the house seeks to buy shares at a dis­count to their in­trin­sic value from a long-term per­spec­tive. It can buy shares in com­pa­nies that are shunned by the stock mar­ket be­cause of their short-term prospects.

It has a 4,7% ex­po­sure to com­mod­ity ex­change traded prod­ucts, mostly plat­inum and pal­la­dium. They do not pro­vide a yield, yet the fund has a larger hold­ing in these than it has in listed prop­erty, which has a yield of 5,1%. Liddle says that over the past three years the SA listed prop­erty in­dex has re­turned 25,2%/year, even though dis­tri­bu­tions (div­i­dends) have grown just 7,7%.

“A plat­inum bar in the vault will be just as shiny in 20 years’ time. The same can’t be said of a shiny A-grade of­fice block: it will prob­a­bly need ren­o­va­tion and may even be on the wrong side of town.”

And prop­erty’s lever­age will de­tract from re­turns in the down cy­cle.

Liddle says that at cur­rent prices less than half of SA’s plat­inum mines gen­er­ate enough cash to cover op­er­at­ing costs and cap­i­tal ex­pen­di­ture. Yet SA has the vast bulk of the world’s known plat­inum re­sources. Global sup­plies of the me­tal have been fall­ing for years and it will ac­cel­er­ate if prices con­tinue to fall.


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