NAV on 2019/07/22
|NAV on 2019/07/19
|52 week high on 2019/04/29
|52 week low on 2018/07/30
|Total Expense Ratio on 2019/06/30
|Total Expense Ratio (performance fee) on 2019/06/30
Allan Gray Unit Trust Management (RF) Pty Limited
South African--Multi Asset--Low Equity
Daily interest rate as supplied by FirstRand Bank Ltd.
Allan Gray Optimal comment - Mar 19
During the first quarter of 2019, the Optimal Fund returned 3.6%, a decent return in absolute terms and relative to its benchmark, but not as robust as the FTSE/ JSE All Share Index (ALSI) which returned 8%. This quarter marks the fifth anniversary of changing the internal rules used to manage the Fund.
Over the five years, the Fund generated a total return of 8.5% per annum after fees, a good outcome relative to its benchmark of 5.6%. Unfortunately, the average investor in the Fund did not enjoy the full benefit of this return as investors tend to invest after periods of outperformance and disinvest after periods of underperformance. Given this inclination, I thought it would be worthwhile to revisit what the Fund is trying to achieve and to look at the shortterm drivers of performance.
The Fund uses our internal research process to identify companies that will, in our opinion, generate an above-average return over a long-term time horizon. The Fund buys shares of these companies on behalf of clients and hedges stock market risk by selling stock index futures. To the extent that the shares in the Fund outperform the stock market in the short term, the Fund will generate positive returns. Similarly, during periods where the shares owned by the Fund underperform the stock market, this will detract from the Fund’s returns. An additional short-term interest-type return is earned since the stock index futures that are sold have a future delivery date that incorporates an implied interest rate.
Focusing on the long-term prospects of companies is one of the most important advantages of our research process. This approach helps us to identify companies that are experiencing temporary difficulties, which results in their shares being available at relatively attractive prices. The trade-off of having a long-term time horizon is that things could go against you over the short to medium term. Over the medium term, the interest component can absorb the underperformance of the shares chosen in the Fund relative to the stock index futures, but over shorter periods the interest component is often not sufficient, which results in drawdowns. The largest Fund drawdown was -5.9% from 17 May 2017 to 27 September 2017. Although we would like to avoid short-term periods of negative returns, the reality is that they will occur. However, rest assured that we will continue to adopt our rigorous investment process to generate returns over the long term and hope that investors in the Fund will be able to experience the full benefit of these returns.
During the quarter, the Fund increased its exposure to MultiChoice and Woolworths and reduced its exposure to Nedbank and Absa.
Commentary contributed by Ruan Stander.
The Fund invests mainly in selected shares and it uses exchange-traded derivative contracts on stock market indices to substantially reduce its net equity exposure to within a range of 0-20%. As a result, the Fund's return depends on the level of short-term interest rates (implicit in the pricing of the sold futures contracts) and the performance of the Fund's selected shares relative to the stock market index. The Fund's return is therefore unlikely to be correlated with equity market returns. In addition, a portion of the Fund is typically invested in cash and margin deposits.