15 November 2007
Issue no. 73

Positioning the Allan Gray-Orbis Global Fund of Funds for long-term outperformance

Rand-denominated access to Orbis mutual funds
The Allan Gray-Orbis Global Fund of Funds is a Rand-denominated offshore unit trust that invests in a selection of Orbis mutual funds. It represents Allan Gray's 'Foreign Best View' mix of Orbis funds and aims to outperform its benchmark of 60% FTSE World Index and 40% JP Morgan Global Government Bond Index at no greater level of risk. The Orbis investment philosophy guides all investment decisions. This philosophy is the same as that of Allan Gray: fundamental research and a bottom-up stock selection process are applied according to a rigorous and disciplined investment process.

Using the Fund's flexibility to position it for long-term outperformance at less risk
The Fund has the flexibility to alter its equity and currency exposure through varying the exposure to the different Orbis funds. We believe that the recent changes made will position the Fund, from both an equity exposure and currency perspective, to continue to deliver superior long-term returns relative to its benchmark.

1. Reducing stockmarket risk by reducing equity exposure
The Fund has reduced its overall equity exposure from 60% to 49% after the strong performance of global equity markets and in particular the Asia ex-Japan stockmarkets. Exposure was reduced to the Asia ex-Japan markets in favour of the Orbis Optimal SA Funds. This reduces the Fund's exposure to stockmarket risk. The Optimal SA Funds are hedged portfolios that aim to deliver positive returns in all market conditions by capturing Orbis' ability to generate alpha (or outperformance). We use the Orbis Optimal SA Funds rather than cash and bonds within a foreign balanced portfolio to achieve a better long-term risk-adjusted return.

2. Overweight Asia ex-Japan, but reduced exposure in favour of Japan and Europe The reduction in the Fund's equity exposure to Asia ex-Japan in favour of Japan and Europe has been because of decreasing the exposure to the Orbis Asia ex-Japan Fund in favour of the Orbis Global Equity Fund as well as changes over the period within the Orbis Global Equity Fund. Despite this, the Fund continues to have an overweight position to Asia ex-Japan versus the FTSE World Index. In addition, the Fund has increased its exposure to Orbis' selection of Japanese equities.

3. Overweight Asian currencies and Japanese Yen, but reduced exposure to Asian currencies in favour of the Yen and Dollar From a currency perspective, the Fund has reduced its exposure to Asia ex-Yen currencies in favour of the Yen and the US Dollar. Despite this, the Fund continues to maintain an overweight exposure to the Asia ex-Yen currencies as well as the Japanese Yen and underweight the US Dollar and the Euro.

We believe that the reduction in equity exposure in favour of the absolute return funds will position the Fund, from both an equity exposure and currency perspective, to continue to deliver superior long-term returns on behalf of its investors relative to its benchmark.


Commentary by Mahesh Cooper, Director of Allan Gray Limited

Over the last year the Fund has returned 16.2% in dollars versus its benchmark of 17.7%. The Global Fund of Funds invests in a balanced portfolio of Orbis equity and absolute return funds. The Fund remains overweight Asian and Japanese equities. The overweight position in Japan and overweight exposure to the Yen have contributed to the Fund underperforming its benchmark over the last year. We continue to believe that these holdings provide attractive investment opportunities. The Fund has reduced its exposure to equities with the Fund now having a conservative 49% in equities with the balance in absolute return funds.

Over the last year the Fund has returned 13.7% in dollars versus its benchmark of 17.3%. The Global Fund of Funds invests in a balanced portfolio of Orbis equity and absolute return funds. The Fund remains overweight Asian and Japanese equities. The overweight position in Japan and overweight exposure to the Yen have contributed to the Fund underperforming its benchmark over the last year. We continue to believe that these holdings provide attractive investment opportunities. The Fund has reduced its exposure to equities with the Fund now having a conservative 51% in equities with the balance in absolute return funds.

Over the last year the Fund has returned 17.9% in dollars versus its benchmark of 16.0%. The Global Fund of Funds invests in a balanced portfolio of Orbis equity and absolute return funds. The Fund remains overweight Asian and Japanese equities, where it continues to find opportunities to invest in over-capitalised companies that are attractively priced in relation to their book values. While Japan has underperformed the USA over the last year, we remain confident of the long-term opportunities the Fund's Japanese shares present in absolute terms and versus the equity benchmark. The Fund has a relatively conservative 61% exposure to equities with the balance in absolute return funds.

Over the last year the Fund has returned 17.8% in dollars versus its benchmark of 15.2%. The Global Fund of Funds invests in a balanced portfolio of Orbis equity and absolute return funds. The Fund remains overweight Asian and Japanese equities. While Japan has underperformed the USA over the last year, we remain confident of the long-term opportunities the Fund's Japanese shares present in absolute terms and versus the equity benchmark. The Fund has reduced its exposure to equities with the Fund now having a conservative 54% in equities with the balance in absolute return funds.

Over the last year the Fund has returned 12.5% in dollars versus its benchmark of 13.7%. The Global Fund of Funds invests in a balanced portfolio of Orbis equity and absolute return funds. The Fund remains overweight Asian and Japanese equities. While Japan has underperformed the USA over the last year, we remain confident of the long-term opportunities the Fund’s Japanese shares present in absolute terms and versus the equity benchmark. The Fund has reduced its exposure to equities with the Fund now having a conservative 53% in equities with the balance in absolute return funds.

The Fund delivered a 2.5% dollar return from the underlying Orbis funds during the month compared to 3.1% for its benchmark. Over the last year the Fund has returned 8.4% in dollars versus its benchmark of 13.2%. The Global Fund of Funds invests in a balanced portfolio of Orbis equity and absolute return funds. The Fund remains overweight Asian and Japanese equities, where it continues to find opportunities to invest in over-capitalised companies that are attractively priced in relation to their book values. While Japan has underperformed the USA over the last year, we remain confident of the long-term opportunities the Fund.s Japanese shares present in absolute terms and versus the equity benchmark. The Fund has a relatively conservative 60% exposure to equities with the balance in absolute return funds.

Over the last year the Fund has returned 12.0% in dollars versus its benchmark of 16.2%. The Global Fund of Funds invests in a balanced portfolio of Orbis equity and absolute return funds. The Fund remains overweight Asian and Japanese equities, where it continues to find opportunities to invest in over-capitalised companies that are attractively priced in relation to their book values. While Japan has underperformed the USA over the last year, we remain confident of the long-term opportunities the Fund's Japanese shares present in absolute terms and versus the equity benchmark. The Fund has a relatively conservative 60% exposure to equities with the balance in absolute return funds

The Fund delivered a 1.5% dollar return from the underlying Orbis funds during the month compared to 1.3% for its benchmark. Over the last year the Fund has returned 9.4% in dollars versus its benchmark of 12.9%. The Global Fund of Funds invests in a balanced portfolio of Orbis equity and absolute return funds. The Fund remains overweight Asian and Japanese equities, where it continues to find opportunities to invest in over-capitalised companies that are attractively priced in relation to their book values, although earnings remain relatively depressed. While Japan has underperformed the USA over the last year, we remain confident of the longterm opportunities the Fund's Japanese shares present in absolute terms and versus the equity benchmark. The Fund has a relatively conservative exposure to equities with the balance in absolute return funds.

The Fund delivered a -0.2% dollar return from the underlying Orbis funds during the month compared to 0.1% for its benchmark. Over the last year the Fund has returned 6.1% in dollars versus its benchmark of 11.4%. The Global Fund of Funds invests in a balanced portfolio of Orbis equity and absolute return funds. The Fund remains overweight Asian and Japanese equities, where it continues to find opportunities to invest in over-capitalised companies that are attractively priced in relation to their book values, although earnings remain depressed. While Japan has underperformed the USA over the last year, we remain confident of the long-term opportunities the Fund's Japanese shares present in absolute terms and versus the equity benchmark. The Fund has a relatively conservative 60% exposure to equities with the balance in absolute return funds.

The Fund delivered a 2.8% dollar return from the underlying Orbis funds during the month compared to 0.7% for its benchmark. Over the last year the Fund has returned 10.1% in dollars versus its benchmark of 12.5%. The Global Fund of Funds invests in a balanced portfolio of Orbis equity and absolute return funds. The Fund remains overweight Asian and Japanese equities, where it continues to find opportunities to invest in over-capitalised companies that are attractively priced in relation to their book values, although earnings remain depressed. While Japan has underperformed the USA over the last year, we remain confident of the long-term opportunities the Fund's Japanese shares present in absolute terms and versus the equity benchmark. The Fund has a relatively conservative 60% exposure to equities with the balance in absolute return funds.

The Fund delivered a 0.8% dollar return from the underlying Orbis funds during the month compared to 0.6% for its benchmark. Over the last year the Fund has returned 8.8% in dollars vs its benchmark of 14.9%. The Global Fund of Funds invests in a balanced portfolio of Orbis equity and absolute return funds. The Fund remains overweight Asian and Japanese equities, where it continues to find opportunities to invest in over-capitalised companies that are attractively priced in relation to their book values, although earnings remain depressed. While Japan has underperformed the USA over the last year, we remain confident of the long-term opportunities the Fund's Japanese shares present in absolute terms and versus the equity benchmark. The Fund has a relatively conservative 60% exposure to equities with the balance in absolute return funds.