NAV on 2019/03/25
|NAV on 2019/03/22
|52 week high on 2018/09/05
|52 week low on 2018/04/04
|Total Expense Ratio on 2018/12/31
|Total Expense Ratio (performance fee) on 2018/12/31
Allan Gray Unit Trust Management (RF) Pty Limited
South African--Multi Asset--Low Equity
The daily interest rate as supplied by FirstRand Bank Limited plus 2%
Allan Gray Stable comment - Dec 18
2018 was a difficult year for the Fund with returns that were well below inflation. This contrasts with our goal of inflation beating returns. The only assets in the Fund to beat inflation over the past year were South African bonds and cash, which returned 8% and 5% respectively and the Africa ex-SA assets which returned 23%. The 41% of Fund invested in these assets was insufficient to offset the weak returns from the remainder. 27% was invested in South African equities, which as an asset class fell 9%. Fortunately the shares in the Fund outperformed the FTSE/JSE All Share Index, falling only 4%. The 27% invested in Orbis Funds also detracted, falling 1%. The small position in property was a marginal detractor, while commodities were a marginal contributor to returns.
We invest the Fund in cash and a collection of other assets that we think will generate real returns over time. Cash provides very stable returns but unfortunately its purchasing power is often eroded by inflation. Assets that guard against inflation come at the cost of far greater volatility. The 44% of the portfolio invested in equity and property means that when these assets perform poorly the Fund will do likewise. However, over time we think money invested in equities should contribute to returns rather than detract.
Rather than investing across a broad selection of equities we select specific companies that we think will generate superior returns over a multi-year investment horizon. A long investment horizon allows time for the fundamentals to overcome the noise and for business cycles to normalise. We are very aware that the future is extremely uncertain. With this in mind we construct a portfolio that we think will endure in various scenarios rather than excel in one. Each company we invest in is bought based on our view of sustainable earnings and a fair price for those earnings. In the short term the market usually disagrees with our assessment of value and sometimes we are wrong in our assessment of normal earnings. In the cases where we have misjudged the normal earnings power of a company it is important to reassess the fundamental value.
Some of the Fund’s largest holdings, Naspers, Glencore, British American Tobacco (BAT) and Investec, fell in price over the past year. The important question is whether the price declines were based on the underlying fundamental value falling as the earning power declined, or possibly something more short-term in nature. For Investec, Naspers and Glencore our view of the underlying value is basically unchanged, as you would expect over just 12 months. In the case of BAT, the Fund’s biggest detractor, our expectations in terms of earnings and cash flow are a little lower than 12 months ago, but the risks facing the share have no doubt increased. The regulatory headwinds and level of competition from new entrants into the nicotine industry are definitely greater; add to this the increased debt from the recent Reynolds acquisition. This uncertainty and risk mean the company will attract, and deserves, a lower multiple on normal earnings. However, to our minds, the 43% fall in the share price more than accounts for the increased risk and the share is more attractively priced than a year ago relative to the underlying value. Therefore, we still own the share and have recently added to the position.
We strive to find assets - whether fixed interest, equity or property - that will give our investors inflation beating returns. There will be times when the asset mix underperforms inflation but we think the portfolio should generate real returns over the long term as the cash flows and fundamental value of our holdings come through.
During the quarter we bought Glencore and Sappi, and we sold MTN and Nedbank.
The Fund invests in a mix of shares, bonds, property, commodities and cash. The Fund may buy foreign assets up to a maximum of 25% of the Fund (with an additional 5% for African ex-SA investments). 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 40%. The Fund's net equity exposure may be reduced from time to time using exchange-traded derivative contracts on stock market indices. 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 or a balanced fund.