NAV on 2020/02/25
|NAV on 2020/02/24
|52 week high on 2019/04/23
|52 week low on 2019/08/16
|Total Expense Ratio on 2019/12/31
|Total Expense Ratio (performance fee) on 2019/12/31
Allan Gray Unit Trust Management (RF) Pty Limited
Medium - High
South African--Multi Asset--High Equity
The market value-weighted average return of funds in the South African - Multi Asset - High Equity category (excluding Allan Gray funds)
Duncan joined Allan Gray in 2001 as an equity analyst after completing his Honours in Business Science and post graduate diploma in Accounting at the University of Cape Town. He is a CFA charter holder and was appointed a trainee portfolio manager in January 2003.
As of 1 January 2005, Duncan was promoted to the position of portfolio manager and will be managing a portion of the balanced and equity portfolios of the segregated and life clients.
Allan Gray Ballance comment - Dec 19
The Balanced Fund returned 6.7% for 2019, comprising 2.9% from domestic shares, 2.3% from foreign assets, 0.9% from domestic bonds and 0.6% from commodities. The Africa funds contributed 0% to the return for the year.
A braai over the weekend inevitably reminds us of the significant challenges our country faces – there is lots of negative news to talk about. An unemployment rate of 29%, combined with youth unemployment of 58%, means that most citizens are still not being included in the economy and cannot help the government to raise further tax revenue to address high and increasing debt levels (61% of GDP, currently). Our government bailout of Eskom alone will add R50bn to debt (1% of GDP) in 2020. Even an optimist would struggle to see a financial way out for the public monopoly as a result of poorly maintained infrastructure and new stations that may never operate economically as a result of significant design flaws.
The good news for investors is that asset prices compensate investors for risks, and various options are available to mitigate bad outcomes for the country. Government bonds may be seen as risky given the backdrop mentioned above, but the yield on 10-year government bonds at 9% is 4.1% higher than the average consumer inflation rate over the past five years. This has only been the case 23% of the time since 1974. Our stock market is also unusually cheap relative to inflation, with a dividend yield of 3.6%, only 1.3% below inflation. The average of the dividend yield on stocks and yield on 10-year bonds is 1.4% higher than inflation. This has only been true 3% of the time since 1974. What is also comforting is that subsequent five-year returns of stocks and bonds averaged 14% a year ahead of inflation when they were this cheap or cheaper, since pessimism on earnings growth does not always materialise and investors typically enjoy a re-rating on top of the above average yield when assets are this cheap.
Having said this, given the risks, one would be wise to look for opportunities that protect capital in a bad outcome for the country. Money market instruments carry low risk of default and capital loss in a scenario where inflation increases. These make up 3.3% of the Fund and yield 7.2%, currently. Bonds make up 9.5% of the Fund, yield 9.2% on average and are skewed towards corporates. Cheaply priced domestic shares that don’t depend on South Africa – including top 10 shares like Naspers, British American Tobacco and Glencore – are another option that we are fortunate to have. The average dividend yield of these three shares is 4.5% and there is a strong case to be made that this basket of companies will grow faster than the South African economy in most scenarios through a combination of secular growth (Naspers), organic price growth of strong brands (British American Tobacco) and strong commodity fundamentals combined with share buybacks at low prices (Glencore).
Owning domestic shares that trade at a meaningful discount to fair value helps to protect against a bad outcome as companies can pass on inflation to consumers. Top 10 shares like Standard Bank, Old Mutual, Investec and Woolworths trade at an average dividend yield of 5.3% and at a discount to our estimate of intrinsic value. In a scenario where the economy starts growing again, these shares would offer further upside. Finally, a diversified portfolio of global shares and fixed income securities selected by our offshore partner, Orbis, provides protection in a scenario where the rand weakens materially.
During the quarter, the Fund bought Nedbank and Glencore and sold Prosus to buy Naspers.
Commentary contributed by Ruan Stander 31 December 2019 Minimum
The Fund invests in a mix of shares, bonds, property, commodities and cash. The Fund can invest a maximum of 30% offshore, with an additional 10% allowed for investments in Africa outside of South Africa. The Fund typically invests the bulk of its foreign allowance in a mix of funds managed by Orbis Investment Management Limited, our offshore investment partner. The maximum net equity exposure of the Fund is 75% and we may use exchange-traded derivative contracts on stock market indices to reduce net equity exposure from time to time. The Fund is managed to comply with the investment limits governing retirement funds. Returns are likely to be less volatile than those of an equity-only fund.