The Fund invests in a balanced portfolio of equity and absolute return funds. Currently, the Fund is underweight global equities as certain major stockmarkets (and especially the USA) are considered to be expensive. Within equities, the Fund is very overweight Japan and very underweight the USA. After a prolonged bear market, Japanese equities are considered to offer the prospect of superior long-term returns. US equities on the other hand, while below their April 2000 peak valuations, are still generally trading well above intrinsic value. Recently the Fund's exposure to the yen was increased at the expense of the euro.

The Fund invests in a balanced portfolio of equity and absolute return funds. Currently, the Fund is underweight global equities as certain major stockmarkets (and especially the USA) are considered to be expensive. Within equities, the Fund is very overweight Japan and very underweight the USA. After a prolonged bear market, Japanese equities are considered to offer the prospect of superior long-term returns. US equities on the other hand, while below their April 2000 peak valuations, are still generally trading well above intrinsic value. Recently the Fund's exposure to the yen was increased at the expense of the euro.

The Fund invests in a balanced portfolio of equity and absolute return funds. Currently, the Fund is underweight global equities as certain major stockmarkets (and especially the USA) are considered to be expensive. Within equities, the Fund is very overweight Japan and very underweight the USA. After a prolonged bear market, Japanese equities are considered to offer the prospect of superior long-term returns. US equities on the other hand, while below their April 2000 peak valuations, are still generally trading well above intrinsic value. Recently the Fund's exposure to the yen was increased at the expense of the euro.

Launched in March 2004, Allan Gray Global Equity Fund of Funds (AGGE) invests in funds managed by the Orbis Group, its Bermuda-based affiliate, founded by Allan W Gray in 1989. As with the firm bearing Gray's name that he founded in SA, Orbis has never shied away from taking an investment view that differs radically from the norm.

This is clearly evident in the structure of AGGE and its underlying Orbis funds. AGGE's portfolio is divided 50-50 between absolute return funds and equity funds, with the latter heavily weighted towards Japan.

In turn, the Orbis Global Fund, to which AGGE has a 26% exposure, is overweight in Japanese shares and underweight in US shares, compared with the key MSCI world index.

"We select funds in conjunction with Orbis," says Allan Gray chief investment officer Stephen Mildenhall. "We see a conservative offshore portfolio as being the best option. This implies a low share exposure in general and a low exposure to US dollar assets, in particular."

On a "look-through" basis, AGGE's share exposure is: Japan 32,2%, Europe 7,2%, US 7% and emerging markets and other 4,6%. By comparison, the MSCI index's weightings are: US 52%, Europe 29%, Japan 9% and emerging markets and other 10%. These are levels usually adhered to closely by most global equity funds.

Mildenhall explains: "Japan offers the best value of any market and has the least risk of capital loss. Profits of many Japanese firms have been depressed and are now rising off a low base. They also have a lot of cash on their balance sheets." By contrast, he says, value is hard to find in the US, and the dollar's vulnerability adds further risk.

He says the absolute return funds are run on the basis of providing a return in excess of market indices in a rising market, and to act defensively in a declining market while still producing positive returns. "Orbis has done it successfully for 14 years," says Mildenhall. Orbis's Global fund has also been a success, with its 16,3%/year return over five years to March 3 trouncing the average global equity fund's negative 3,0%/year.

Financial Mail - 11 March 2005