For the 12 months ended 31 October, rolling 12-month returns accelerated to 35.5%, ahead of that of the average prudential fund of 30.2%. Investors are again cautioned that we believe these returns to be abnormally high and unlikely to be sustained over the longer term. These high returns were driven by strong equity markets globally and particularly in South Africa. The fund over the last year benefited from its overweight positions in gold, platinum and particularly Sasol. We now increasingly struggle to find attractively valued shares for inclusion into the fund's share portfolio. This is indicative of a domestic equity market which has become more fully valued. This is especially so if the exceptionally high levels of profitability of domestic industrial counters are taken into account. This lack of value is reflected in the fund's declining share exposure. We have also used derivatives to further reduce exposure to the domestic share market.

For the 12 months ended 30 September rolling 12-month returns accelerated to 39.8%, ahead of that of the average prudential fund of 35.4%. Investors are again cautioned that we believe these returns to be abnormally high and unlikely to be sustained over the longer term. These high returns were driven by strong equity markets globally and particularly in South Africa. The Fund over the last quarter benefited from its overweight positions in gold, platinum and particularly Sasol. We now increasingly struggle to find attractively valued shares for inclusion into the Fund's share portfolio. This is indicative of a domestic equity market which we increasingly find to be expensive. This is especially so if the exceptionally high levels of profitability of domestic industrial counters are taken into account. This lack of value is reflected in the Fund's declining share exposure. We have also used derivatives to further reduce exposure to the domestic share market.

For the 12 months ended 31 August the Fund returned a very handsome 35.6%, slightly ahead of that of the average prudential fund of 35.2%. Investors are once again cautioned that we believe these returns to be abnormally high and unlikely to be sustained over the longer term. These high returns were driven by strong equity markets globally and particularly in South Africa. Our market continues to rally on the back of strong earnings growth and low interest rates. Profitability of domestic businesses has now increased to levels that we believe to be unsustainable over the longer term. Therefore, even though it could be argued that our market's current PE multiple of ±15 times is appropriate given current low interest rates, a normalisation of profitability levels will reveal a far higher market rating. This is confirmed by the fact that we increasingly struggle to find attractively valued domestic shares for inclusion into the Fund's share portfolio. Exposure to shares, especially domestic orientated shares, has therefore been reducing.

The strong advance in the stockmarket continued in July, pushing the Fund's 12-month return to a very strong 42.9%, outperforming the average prudential fund's 41%. The domestic stockmarket's PE ratio has expanded from its low of 8.6 in April 2003 to the current ratio of ±15.5 times. Domestic shares, notably domestic industrial shares, are now approaching expensive levels of valuation, especially if the current high levels of profitability of domestic industrials are taken into account. The Fund's share exposure has decreased as we continued to reduce exposure to domestic industrials. Some selected resource counters on the other hand still offer attractive value. We also continue to favour a conservative offshore portfolio of assets and have maintained the offshore allocation at the maximum allowed by the regulators.

The Fund ended the first half of 2005 on a strong note, as it benefited from strong equity markets globally and a weaker domestic currency. Our largest position, Sasol, was especially strong as, over and above the generally favourable business environment created by the strong oil price and weaker Rand, investors are increasingly recognising the value inherent in its gas to liquids technology. The Funds return over the previous 12 months is a very strong 36%, ahead of those of the average prudential fund of 34.4%. Investors are again cautioned that these are abnormally strong returns, which are unlikely to be sustained over the longer term. Despite the relative price appreciation of the past 6 months, we continue to find attractive value among resource shares, where the Fund continues to be overweight, and foreign assets, where exposure is maintained at the allowable maximum.

The fund appreciated strongly in May, on the back of a weaker domestic currency and strong equity markets internationally. The return of the fund over the previous 12 months is a very pleasing 32.5%, in line with that of the average prudential unit trust. Investors should note that we believe this return to be unsustainably high and future return expectations should be well below these levels. The Rand: Dollar exchange rate broke a 4 year downtrend and further weakness is likely as we continue to believe the Rand at current levels to be over-valued. Momentum has now clearly shifted in favour of the more attractively valued Resource shares. The fund continues to favour Resource shares and has taken up its full 15% permissible foreign asset exposure. Both these assets we find more attractively valued than domestic industrials where the fund is now underweight.

Last year the FM cautioned investors not to be hasty in abandoning Allan Gray Balanced (AGB) as it began moving strongly against the tide of popular thinking by reducing its industrial holdings and increasing rand-hedge and foreign exposure. Now, with the rand sliding and investors bidding up rand hedges, the strategy is proving spot-on. AGB is a fund worth strong consideration by serious investors with a long-term horizon.

Financial Mail - 10 June 2005

The Fund again made a strong absolute return in the quarter ending 31 March 2005, bringing the 12-month return to 23%. Although this is still slightly behind the return generated by the average prudential unit trust, it is in line with the Funds long-term objective of producing consistent and strong absolute returns. The momentum in the market during the first few months of 2005 shifted from financial and industrial shares to resource shares. This shift in momentum benefited the Fund as it is in line with our analysis where the best value is to be found in the market. We continue to find superior value among selected resource shares, while we struggle to find attractive value among industrial shares. The portfolio should benefit from continued Rand weakness. On a relative basis we find low risk offshore assets increasingly attractive and we have recently increased exposure to this asset class to the full 15% permissible level.

The fund again made a strong absolute return in the quarter ending 31 March 2005, bringing the 12-month return to 24.4%. Although this is still slightly behind the return generated by the average prudential unit trust, it is in line with the funds long-term objective of producing consistent and strong absolute returns. The momentum in the market during the first quarter of 2005 shifted from financial and industrial shares to resource shares. This shift in momentum benefited the fund as is in line with our analysis where the best value is to be found in the market. We continue to find superior value among selected resource shares, while we struggle to find attractive value among industrial shares. The portfolio should benefit from continued rand weakness. On a relative basis we find low risk offshore assets increasingly attractive and we have increased exposure to this asset class to the full 15% permissible level.

While, on a 12-month basis, the fund continues to lag behind most of its peers, it nevertheless delivered a strong absolute return of 21.5%. This ment the funds long-term objective of producing consistent and strong absolute returns and its 5-year annualised return now stands at 21.5%. Over the last year, value has shifted away from industrial shares in favour of resource shares, and the portfolio has followed this valuation shift with increased resource exposure at the expense of industrial exposure. We also continue to favour the banking shares over industrials. Some weakness in the rand during January did interrupt the positive momentum in the financial and industrial shares and the negative momentum in the resource shares, but it is too early to call this a change in trend. On a relative basis we find low risk offshore assets increasingly attractive and we will endeavour to increase exposure to this asset-class to the full 15% permissible level.

The fund returned 23.4% for 2004, bringing its returns for the 5 years ending December, to 22.4%pa. While the 2004 returns were not as strong as those produced by some of our peer funds, they continued the funds long-term objective of producing consistent and strong absolute returns. These strong returns was on the back of a 25.4% return by the FTSE/JSE All Share Index. A feature of 2004 was a booming domestic economy, low interest rates and a strong rand, with the result that financial and industrial shares returned 49% while resource shares, on average lost 5%. The advance in domestic shares was in line with most other domestic assets and shares remain our preferred domestic asset class. The strong price appreciation of domestic assets relative to offshore assets and resource producers have however improved the investment merits of the latter and the fund has selectively increased its exposure to these assets.

The Allan Gray Balanced Fund marked its fifth anniversary by boosting its total assets to more than R6bn in October this year. Not including the money market funds, it is now the largest single unit trust fund in any South African sector.
Following the 1998 launch of the Allan Gray Equity Fund, the Allan Gray Balanced Fund was introduced in 1999 to provide a more flexible investment product implementing Allan Gray's absolute return philosophy. As the Equity Fund is dedicated to equity investments, its returns are to a large extent dependent upon the level of the overall stockmarket. The Balanced Fund however has a wider selection of assets available to it, namely shares, listed property, interest bearing securities and international assets. As a result its returns can be expected to be more stable than those of the Equity Fund. Importantly, the risk of monetary loss is lower.
The Balanced Fund is equally suited to pension funds and private investors seeking long-term wealth creation and who want to delegate the asset allocation decision to Allan Gray. The fund's return objective is to earn a higher rate of return than the market value-weighted average of the domestic medium equity prudential unit trust sector excluding the Allan Gray Balanced Fund without assuming any greater monetary risk. Since its inception and over the 5-year period, the fund has handsomely exceeded its benchmark by achieving a total annualised return of 24.1% pa. This is almost double the return of its benchmark over this period of 13.1%.
Although recent returns have slightly lagged those of its benchmark, the fund nonetheless returned an acceptable 21.7% over the most recent 12-month period. This is on the back of the JSE appreciating strongly from its lows in April last year. Despite this appreciation, we still prefer domestic shares to bonds and cash, and the fund has maintained a relatively high exposure to equities. Due to a booming domestic economy, industrial shares have done most of the running, while our persistently strong currency has exerted pressure on resource stocks. On the back of this strong appreciation in industrial shares, especially credit retailers, we have rotated the portfolio out of industrials, where we used to be heavily invested, in favour of banking and selected resource shares where we find valuations now more attractive. Although we can be criticised for making these changes too early, they are in line with our philosophy of investing the portfolio in the best available long-term return opportunities. The fund continues to hold a reasonable exposure to resource shares whilst it increased its exposure to foreign assets, based on attractive valuations and what we believe to be an unsustainably strong rand.

The Allan Gray Balanced Fund marked its fifth anniversary by boosting its total assets to more than R6bn in October this year. Not including the money market funds, it is now the largest single unit trust fund in any South African sector.
Following the 1998 launch of the Allan Gray Equity Fund, the Allan Gray Balanced Fund was introduced in 1999 to provide a more flexible investment product implementing Allan Gray's absolute return philosophy. As the Equity Fund is dedicated to equity investments, its returns are to a large extent dependent upon the level of the overall stockmarket. The Balanced Fund however has a wider selection of assets available to it, namely shares, listed property, interest bearing securities and international assets. As a result its returns can be expected to be more stable than those of the Equity Fund. Importantly, the risk of monetary loss is lower.
The Balanced Fund is equally suited to pension funds and private investors seeking long-term wealth creation and who want to delegate the asset allocation decision to Allan Gray. The Fund's return objective is to earn a higher rate of return than the market value-weighted average of the domestic medium equity prudential unit trust sector excluding the Allan Gray Balanced Fund without assuming any greater monetary risk. Since its inception and over the 5-year period, the fund has handsomely exceeded its benchmark by achieving a total annualised return of 24.1% pa. This is almost double the return of its benchmark over this period of 13.1%.
Although recent returns have slightly lagged those of its benchmark, the fund nonetheless returned an acceptable 21.7% over the most recent 12-month period. This is on the back of the JSE appreciating strongly from its lows in April last year. Despite this appreciation, we still prefer domestic shares to bonds and cash, and the Fund has maintained a relatively high exposure to equities. Due to a booming domestic economy, industrial shares have done most of the running, while our persistently strong currency has exerted pressure on resource stocks. On the back of this strong appreciation in industrial shares, especially credit retailers, we have rotated the portfolio out of industrials, where we used to be heavily invested, in favour of banking and selected resource shares where we find valuations now more attractive. Although we can be criticised for making these changes too early, they are in line with our philosophy of investing the portfolio in the best available long-term return opportunities. The fund continues to hold a reasonable exposure to resource shares whilst it increased its exposure to foreign assets, based on attractive valuations and what we believe to be an unsustainably strong rand.
At the end of the September quarter, the following shares were the major holdings in the fund's share portfolio