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 Tax-Free Balanced comment - Dec 18
It was another eventful year on the market. The FTSE/JSE All Share Index (ALSI) was down 9%, making it one of the worst years ever. What made 2018 unique, though, is that nothing did well. Bonds and cash gave mediocre returns, and property did even worse than equities. Contrast this with 2008 (the worst year for stocks on record), when the ALSI was down 23%, but bonds gave you 17% and gold gave you 45%. The average return across the four major domestic asset classes - equities, bonds, cash, and property - has never been worse than in 2018, at least according to our records, which go back to 1976. Internationally, the picture is similar. No asset class delivered good returns in 2018. More than half the shares in the S&P500 have fallen 20%, or more, from their peak. Some other emerging markets have done much worse than South Africa: shares in Turkey are down 43%, and shares in Argentina are down 50% (both measured in US dollars). Here are some things that stood out for us in 2018:
-The rand weakened by 16% against the US dollar. Investors seem to have lost confidence in South Africa’s turnaround story. Eskom is proving difficult to fix, and public finances more broadly still look tenuous. -Companies with lots of debt have been punished by the market. These include Aspen, Mediclinic, Intu Properties, MTN, AB InBev, and British American Tobacco (BAT) - the last being one of our top 10 holdings. -The property sector had its worst year ever. -Investors became increasingly jittery about accounting fraud. At various times during the year, Aspen, Resilient, Nepi Rockcastle, and Capitec were in focus. There has been little progress in the Steinhoff case, but the fraud does seem to have been worse than we feared. -BAT, MTN, and Glencore all faced regulatory problems. -Commodity producers have done well, especially Anglo American Platinum (Angloplats). .. -The price of bitcoin is down 73%.
The return of the Allan Gray Balanced Fund was - 3% for the year, roughly similar to the return of the average South African balanced fund. If we could have foreseen what markets would do in 2018, we would have had lower equity exposure, or put everything in Angloplats. But of course no-one knows in advance how markets will do. We are confident that having a sizeable proportion of your money in cheap shares is a good idea. We don’t know what the market will do in 2019, but we do know that the shares in the portfolio - Naspers, Sasol, BAT, Standard Bank, etc - are currently trading at attractive valuations, which is normally a good sign for long-term returns.
The performance of the Fund was helped by being underweight Steinhoff and by being overweight Sasol. Performance would have been better if we had owned less BAT, and more BHP and Anglos. In aggregate, the domestic shares in the fund outperformed the ALSI. The weak rand boosted foreign returns, but these were offset by Orbis’ underperformance.
During the quarter we bought BAT and Glencore, and we sold Old Mutual and Anglo American.
The Fund is managed in broadly the same way as the Allan Gray Balanced Fund. It was created specifically for use in tax-free accounts and can only be accessed through these products. 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 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.