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 Equity comment - Dec 19
The FTSE/JSE All Share Index (ALSI) increased by 12% during 2019. Over the past four years, the market has returned 6.2% per year, which is 2.1% better than inflation.
Here are some things which stood out in 2019: .
Platinum and gold shares gave huge returns. Impala, which had already doubled from its low price of R16 when the year started, went up a further four times during 2019. Sibanye-Stillwater and Northam tripled. .
Many investors had been avoiding the gold and platinum miners in favour of “high-quality” companies like Shoprite, Discovery and Mr Price. Unfortunately, 1) quality is a subjective measure and the perceived quality of a business can change rapidly, and 2) even a high-quality company can become too expensive and fail to live up to the expectations priced in by the market. Shoprite, Discovery and Mr Price were all down in 2019. .
The listing of Prosus was a disappointment, as it did not really unlock any of the Naspers holding company discount. Reinet and Remgro, two other holding companies, had more success, by respectively buying back shares and promising to unbundle FirstRand to shareholders. On the bright side, Naspers’ large bets in food delivery seem to be doing well, judging by share-price performance: Delivery Hero doubled in 2019. .
Old Mutual had a messy public falling out with its CEO, Peter Moyo. The court case is ongoing. .
Capitec continued to do well. It is now the best-performing company on the JSE over five years. The other banks underperformed the market. .
The currency strengthened slightly versus the dollar, despite continued problems at our state-owned enterprises. .
Larger shares continued to outperform smaller shares. The 40 largest JSElisted companies gave an average return of 11%. The average return for companies numbered 81 – 120 (in terms of size), was -10%. .
Aspen started the year at R134, fell all the way to R65, and ended at R119. The all-time high was R448 in 2015.
Some of the events outlined above illustrate our belief that the price you pay for an asset is more important than any other factor. It feels good to own “high-quality” companies, or shares that are busy going up. But, as mentioned, perceived quality and share performance can reverse very quickly (indeed, the two factors are highly correlated). An investor who doesn’t have a firm idea of the underlying value of a business risks being like St Paul’s spiritual infants: “Tossed back and forth by the waves, and blown here and there by every wind…” [of market sentiment!].
The Fund underperformed its benchmark by 2.3% in 2019 and by 1.5% in the final quarter of the year. The Fund’s performance over the year was helped by overweight positions in British American Tobacco and Impala, and by underweight positions in Shoprite and Prosus. It was hindered by being overweight Sasol and KAP, and by being underweight Anglo American. It was also impacted by the Orbis Global Equity Fund underperforming its benchmark by 6.6%.
In the fourth quarter, we purchased Nedbank and sold Impala Platinum. We also switched Prosus shares into Naspers shares.
The Fund invests primarily in shares listed on the Johannesburg Stock Exchange (JSE). The Fund may buy foreign assets up to a maximum of 25% of the Fund, with an additional 5% allowed for African ex-SA investments. The Fund invests the bulk of its foreign allowance in equity funds managed by Orbis Investment Management Limited, our offshore investment partner. The Fund is typically fully invested in shares. Returns are likely to be volatile, especially over short- and medium-term periods.