Mandate Overview16 May 2022
The Fund invests in a mix of shares; bonds; property; commodities and cash. The Fund can invest a maximum of 30% offshore; with an additional 10% allowed for investments in Africa outside of South Africa. 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.
Allan Gray Balanced comment - Dec 21 - Fund Manager Comment09 Mar 2022
The Fund returned 5.1% for the quarter and 20.3% for the 2021 calendar year. While absolute returns have been strong in real terms, we are not where we want to be versus the best of our peers over the recent past. We remain significantly underweight US equities, which make up over 60% of the MSCI World Index. Instead, we find depressed European, UK, and emerging market equities more attractive. Although this has hurt relative returns in the short term, we find the valuation disparity compelling. We continue to own no long-dated developed world sovereign bonds and rather have a position in gold. The portfolio has been increasingly tilted towards managing the risks that may arise from higher realised global inflation and interest rates.
As noted in previous factsheets, we have been finding value in both local
equities and bonds. This has been reflected in an equity and bond weighting that
is higher than usual. The major risk we see is the overvaluation of the US market
and how local assets would perform in a scenario where that overvaluation
suddenly corrected.
Nonetheless we remain optimistic about the long-term value inherent in our chosen local equities. Sometimes it takes patience for that value to be realised. For example, Rand Merchant Insurance (RMI), which traded at a deep discount to its underlying holdings, announced the unbundling of its shares in Discovery and Momentum, and sold its holding in UK insurer Hastings, resulting in a large rerating of the share. This is not just a positive for RMI, but also for its largest shareholder, Remgro, which itself trades at a large discount to its underlying investments. Indeed, the discount climbed as high as 38% during 2021.