ALLAN GRAY EQUITY FUND

Allan Gray remains true to its contrarian label, and most people should include it in their investment mix, if only as a diversifier.

The equity fund takes a multiple counsellor approach, with each portfolio manager responsible for, on average, 25% of the fund. Over the past year the chief investment officer role has moved from Andrew Lapping to Duncan Artus, and the other portfolio managers are Jacques Plaut, Rory Kutisker-Jacobson and Tim Acker.

As a large fund of R36bn it inevitably fishes almost entirely in the large cap pond. Some of its bets look little different from its peers, and include Standard Bank and FirstRand (about 5% combined), and Naspers (more than 10%).

But Kutisker-Jacobson says it can still make aggressive off-benchmark calls. It does not hold BHP or Anglo American. It is concerned about BHP’s iron ore exposure — it does not believe an iron ore price of $220/t is sustainable and the current share price relies on this. It prefers Glencore, with no iron ore exposure. It is the thirdlargest share, with a 4% position. It is just behind British American Tobacco, which Kutisker-Jacobson describes as “antifragile with its predictable free cash flow”.

The fund also has an unusually high holding in Woolworths, of more than 3%.

Kutisker-Jacobson is sure management will not pour more money into the Australian operations and says the share price does not take into account the quality of the local food business and the potential recovery in clothing. The fund has accessed the potential of extra hospital revenue through Life Healthcare, which it considers to be best in class.

The fund has a foreign allocation run by sister company Orbis, which is just below the maximum at 27% and a further 4% in Africa. The Orbis performance is significantly more cyclical than Allan Gray as it is deeply contrarian (it doesn’t like to be called deep value). Kutisker-Jacobson says Orbis can be more aggressive, as it can invest anywhere in the world and does not have Allan Gray’s liquidity constraints. Orbis’s top 10 holdings probably won’t overlap at all with its competitors.

It is in the sunshine now: it has outperformed the MSCI World (in dollars) by four percentage points in the past year.