ALLAN GRAY BALANCED FUND
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.