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Allan Gray Annual Report PDF

53 Pages·2016·0.89 MB·English
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CONTENTS 1 CHAIRMAN’S REPORT ALLAN GRAY UNIT TRUSTS 3 CHIEF INVESTMENT OFFICER’S REPORT 43 Statements of comprehensive income 5 PORTFOLIO MANAGERS 47 Statements of financial position 9 ALLAN GRAY UNIT TRUSTS 51 Distribution to unitholders 19 PERFORMANCE SUMMARY 58 Trustees’ report on the Allan Gray Unit Trust Scheme FUND DATA 21 Allan Gray Equity Fund 59 IMPORTANT NOTES FOR INVESTORS 23 Allan Gray SA Equity Fund 25 Allan Gray-Orbis Global Equity Feeder Fund 27 Allan Gray Balanced Fund 29 Allan Gray-Orbis Global Fund of Funds 31 Allan Gray Stable Fund 33 Allan Gray Optimal Fund 35 Allan Gray-Orbis Global Optimal Fund of Funds 37 Allan Gray Bond Fund 39 Allan Gray Money Market Fund 41 Allan Gray Unit Trusts annual fees 42 Allan Gray Unit Trusts total expense ratios and transaction costs EDGAR LOXTON CHAIRMAN’S REPORT It has been a challenging year for investors globally. decreases by 20% you need 25% to get back to From the Greek crisis and declining growth in China where you started. This illustrates the importance of to a very weak rand, struggling resources and the containing losses during down markets. While our debacle with our finance ministers, it’s no wonder relative performance may suffer when markets are investors are battle weary. up, we tend to lose less when markets are down. We have delivered effectively all of our long-term record An investment manager’s job is to remain rational of outperformance in equity and balanced mandates during these testing times. When markets move during months when the market was down. dramatically on the back of emotional trading there are sometimes opportunities to invest at a discount. Over the past few years we have repeatedly The difficult part is assessing which shares are trading communicated that we considered South African at a discount to their underlying long-term value, and shares expensive, and those in other markets less so. which are only at a discount to their previous (perhaps The overall South African market is about flat over irrationally inflated) price. Value-oriented managers the year, but this outcome is skewed by the shares like us don’t always get this right: it requires analysts of a few multinational businesses that make up a to look past the superficial and to make rigorous substantial part of the market and have done very well, assessments of those factors that drive a company’s such as media giant Naspers, brewer SABMiller or future prospects. We remain committed to doing the British American Tobacco. Outside of these there have hard work required to successfully invest your funds in been dramatic share price drops and our analysts are line with our research-based, value-oriented, long-term increasingly excited about the resulting opportunities investment philosophy. to invest in well-priced businesses. We are now more worried about global equity valuations, especially Performance of our unit trusts those in developed markets, which (on average) seem The results of our analysts’ and portfolio managers’ to be unrealistically optimistic. efforts in 2015 have been encouraging. Our three You can find more detailed information on how we largest ‘flagship’ funds (Equity, Balanced and Stable) have positioned your portfolios in each unit trust on have each beaten their benchmarks by some way and the individual unit trust pages later in this publication. delivered healthy real returns. The Allan Gray Balanced Fund returned 12.3% for the year, 3.9% better than Changes to the Equity Fund and launch of SA Equity Fund its benchmark and 7.5% ahead of inflation. The Allan After the positive response to our ballot reported in last Gray-Orbis Global Equity Feeder Fund and the Global year’s report, the Equity Fund’s benchmark and fee Fund of Funds delivered 29.5% and 31.1%. These were changed and its mandate broadened to allow numbers are 3.7% and 1.7% respectively behind their 25% offshore investment and a further 5% in Africa benchmarks but are hopefully large enough in absolute equities. Currently just over 13% is invested offshore terms to provide some comfort to investors. The remaining and this contributed 2.3% to the total return of the smaller funds have all beaten their benchmarks. Equity Fund over the year. It probably isn’t a surprise to you that we did better To cater for investors who would prefer a fund that in 2015’s unsettled markets than before, when things invests only in South Africa, we launched the Allan were smoother sailing. We have written often about Gray SA Equity Fund in March 2015. The new unit managing the risk of a loss of capital: if your investment 1 ALLAN GRAY UNIT TRUSTS ANNUAL REPORT 31 DECEMBER 2015 trust has the same fee structure as the Allan Gray Keeping up with trends in technology Equity Fund and its benchmark is the FTSE/JSE All Investors’ expectations around client service are evolving. Share Index (including income). You can read more To meet the increasing demand for digital excellence, about this unit trust on page 23. While we do not in November 2015 we launched a new public website. actively market this unit trust, you are welcome to The new site reflects current best practices in the digital contact your financial adviser, or our Client Service world: pages are clean, information is presented in Centre, if you need more information and it is open to layers and the site works well on all digital devices. We investments via all of our products on the same terms are excited about the new website and encourage you to as the Allan Gray Equity Fund. visit www.allangray.co.za if you haven’t done so already. Changes to the investment team Update on unitholders An important strength of our investment process is that Assets under management as at 31 December 2015 it provides for multiple portfolio managers to each were R230.4bn. While this is an increase from the manage a slice of our clients’ portfolios for which R215bn we reported at the end of 2014, it masks the they are individually accountable. Not only does this fact that there were net outflows of R16bn in 2015, allow for a diversity of views to be expressed, but it probably reflecting disappointment with our short-term facilitates succession. performance during the year. In May this year we wrote to inform you that Ian Liddle, Gross client outflows divided by the average value of who has been chief investment officer (CIO) since early assets in our unit trusts in 2015 were at 19%. This 2008, would take on the role of chairman of Allan Gray means that, on average, clients are staying with us Proprietary Limited following the sad passing of our for five years. Our fund churn rate, which includes chairman and former CIO Simon Marais. At the same switches between unit trusts*, has come in at 24% time we announced Andrew Lapping’s promotion to for the year, reflecting a weighted average holding deputy CIO and our intention that he take over from Ian period for investors of just over four years. as group CIO in March 2016. As this change comes into effect, I would like to take this opportunity to thank Ian We try to encourage clients not to make emotional for his tremendous contribution to the business during his decisions in response to the ups and downs of the time as portfolio manager and CIO and wish Andrew market or of our performance, and to remain invested every success as he moves into his new role. for a reasonable period of time, to give them more opportunity to share in the performance of their chosen These promotions made room for others to expand funds. Allan Gray clients are better at long-term their responsibilities and in November 2015 we investing than the average investor and although these announced that associate portfolio managers Ruan numbers are worse than 2014, they are still quite Stander, Jacques Plaut and Leonard Krüger, who have positive. Nevertheless, it is frustrating that the months all been in the investment team for the last eight years, of good relative performance at the end of the year were promoted to the role of portfolio manager. Gary were not enjoyed by all of the investors who began Elston has been appointed to manage the Money the year with us. Market Fund together with Andrew Lapping. You can read their biographies on page 5. Thank you for trusting us with your savings. *This excludes switches between classes of the same unit trust, and excludes switches from the Money Market Fund. ALLAN GRAY UNIT TRUSTS ANNUAL REPORT 31 DECEMBER 2015 2 IAN LIDDLE CHIEF INVESTMENT OFFICER’S REPORT Our purpose is to grow your savings. To do this we The price today determines future returns must invest wisely and retain your trust and confidence. One of the exciting aspects of markets is that they We never take your trust for granted, and we work move ahead of events. So while the public awareness hard to earn it by communicating regularly, clearly of South Africa’s many challenges is now burgeoning and transparently with you and by providing excellent both at home and abroad, the share price of Standard service. Bank, for example, has already collapsed almost two- I am pleased to report that we are achieving our thirds from its peak above US$17 in October 2007 to purpose for the overwhelming majority of our clients. its current level around US$6.40. Thank you for your unwavering support. Having clients The most important determinant of future investment who look to the long-term allows us to make hard returns is the price you pay today. Consequently, we decisions which we believe to be in your best long- are now buying domestic South African businesses in term interest, but which can sometimes turn out to be your portfolios, not because we are positive on South painful for uncomfortably long periods. I hope that the Africa’s near-term economic prospects, but because good performance of our unit trusts in difficult markets we find the share prices attractive enough to offer in 2015 has rewarded your loyalty and patience. potential returns which compensate for the risks. South Africa is suffering some trying times, and Our South African share portfolios currently contain conditions may get worse before they get better. In an eclectic assortment of companies. They range our own small way we are trying to make a positive from businesses with strong growth potential such as contribution as a company: firstly, by empowering Blue Label Telecoms, RMI, Naspers and Aspen, to you by growing your savings, but also by supporting businesses which have fallen on hard times, such as the Allan Gray Orbis Foundation, which is creating Murray & Roberts and Aveng. They include exporters opportunities for many young South Africans. The such as Sappi, Sasol, Kap and African Rainbow establishment of Allan & Gill Gray Foundation by our Minerals and domestic consumer-facing businesses founder to hold and govern the controlling interest such as Standard Bank and Sun International. Some in our business and devote its dividend receipts to are big multinationals such as British American philanthropy will hopefully make an even bigger Tobacco or Old Mutual, while others are small caps impact in the coming years. such as Comair, Adcorp and Super Group. 3 ALLAN GRAY UNIT TRUSTS ANNUAL REPORT 31 DECEMBER 2015 The common thread that weaves through this Looking ahead seemingly incongruous mix is that our own fact-based We can’t see the future, but it wouldn’t surprise and un-emotive research into each of these businesses me if 2016 proves to be a tough year. Hopefully concludes that their current share prices are attractive our diversified portfolios of relatively under-valued relative to their true underlying values. Of course, shares and our considerable cash and other liquid our valuation of at least some of these shares will holdings, will help us to weather the storm. I have the be proven wrong in time. That is why our investment utmost confidence in Andrew Lapping, who will be process is designed to encourage independent thought succeeding me as CIO, and in our investment team, to and constant questioning of our assumptions from steer us through the choppy waters. each member of our investment team. It is also why we hold a diversified portfolio, in which the winners can Thank you for your support. hopefully outnumber and outgun the losers. Staying conservative Our conservative stance was rewarded in 2015, and we are using some of our large cash and other liquid holdings to buy shares which have fallen significantly over the last year. But prices have not fallen enough to go ‘all in’. While shares in emerging markets are down significantly off their highs, the same cannot yet be said of the bellwether US market. If corporate profitability were to revert down to its long-term average, and / or company valuations were to revert down to their normal levels, global share prices could fall significantly. The Allan Gray Balanced Fund had a net equity exposure of 60% at year-end, but one should remember this includes a 4% exposure to SABMiller, which will be sold for cash if the acquisition by AB Inbev proceeds. ALLAN GRAY UNIT TRUSTS ANNUAL REPORT 31 DECEMBER 2015 4 PORTFOLIO MANAGERS IAN LIDDLE CHIEF INVESTMENT OFFICER BBusSc (Hons) CFA Ian joined Allan Gray in 2001 as an equity analyst after several years as a management consultant. He has been managing a portion of client equity and balanced portfolios since January 2005, when he was appointed as a portfolio manager. In February 2008 Ian was appointed as chief investment officer, with overall responsibility for the investment team and portfolio management. He is chairman of Allan Gray Proprietary Limited and a CFA charter holder. DUNCAN ARTUS PORTFOLIO MANAGER BBusSc (Hons) PGDA CFA CMT Duncan joined Allan Gray in 2001 and has been managing a portion of client equity and balanced portfolios since January 2005, when he was appointed as a portfolio manager. He is a director of Allan Gray Group Proprietary Limited. Duncan completed his Honours in Business Science and postgraduate diploma in accounting at UCT. He holds both the CFA and CMT charters. MARK DUNLEY-OWEN PORTFOLIO MANAGER BBusSc (Hons) Mark joined Allan Gray in 2009 having worked at a number of international investment banks. He started managing a portion of the fixed interest portfolios in July 2011, and a portion of the stable portfolios in May 2013. He is one of the portfolio managers of the Allan Gray Money Market and Stable Funds, in addition to managing Africa ex-SA bonds. 5 ALLAN GRAY UNIT TRUSTS ANNUAL REPORT 31 DECEMBER 2015 GARY ELSTON PORTFOLIO MANAGER BBusSc (Hons) CFA Gary joined Allan Gray in 2008 and is currently a credit analyst as well as a portfolio manager for the Allan Gray Money Market Fund. Prior to this role, he was a fixed interest trader for over five years and has previous experience working in the asset management industry in London. Gary has an Honours degree in Business Science from UCT and is a CFA charter holder. LEONARD KRÜGER PORTFOLIO MANAGER BSc (Hons) Actuarial Mathematics Leonard joined Allan Gray in 2007 as an equity analyst. He began managing a portion of our client’s equity and balanced portfolios earmarked for associate portfolio managers from July 2014 and was appointed as portfolio manager of the Stable portfolio in November 2015. Leonard completed his BSc (Hons) Actuarial Mathematics at the University of Pretoria and is a qualified actuary. ANDREW LAPPING DEPUTY CHIEF INVESTMENT OFFICER BSc (Eng) BCom CFA Andrew joined Allan Gray in 2001 as a fixed interest trader and moved to the research team as an equity analyst in February 2003. He was appointed as fixed interest portfolio manager in June 2006, began managing a portion of client equity and balanced portfolios in February 2008 and was appointed as deputy chief investment officer in May 2015. He also manages African equities. Andrew completed his BSc (Eng) and BCom at UCT and is a Chartered Financial Analyst. ALLAN GRAY UNIT TRUSTS ANNUAL REPORT 31 DECEMBER 2015 6 PORTFOLIO MANAGERS SANDY MCGREGOR PORTFOLIO MANAGER BSc BA (Hons) Sandy joined Allan Gray as an investment analyst and economist in 1991. Previously he was employed by Gold Fields of South Africa Limited in a variety of management positions for 22 years, where much of his experience was focused on investment related activities. His current responsibilities include the management of fixed interest and individual client portfolios and he is a fund manager for the Allan Gray Bond Fund. He was a director of Allan Gray Group Proprietary Limited from 1997 to 2006. NICK NDIRITU PORTFOLIO MANAGER BSc (Eng) (Magna cum laude) MBA Nick is a portfolio manager for the Allan Gray Africa ex-SA Equity Fund and Africa ex-SA Bond Fund. He joined Allan Gray in 2010, with prior experience in investment banking and management consulting. Nick holds a BSc in Industrial Engineering (magna cum laude) from Northeastern University and an MBA from Harvard Business School. JACQUES PLAUT PORTFOLIO MANAGER BSc in Mathematics Jacques joined Allan Gray in 2008 as an equity analyst after working as a management consultant. He began managing a portion of client equity and balanced portfolios earmarked for associate portfolio managers from March 2013 and was appointed as portfolio manager in November 2015. Jacques completed his BSc degree in Mathematics at UCT. 7 ALLAN GRAY UNIT TRUSTS ANNUAL REPORT 31 DECEMBER 2015 SIMON RAUBENHEIMER PORTFOLIO MANAGER BCom (Hons) (Cum laude) CFA Simon joined Allan Gray in 2002 and has been managing a portion of client equity and balanced portfolios since July 2008, when he was appointed as a portfolio manager. He completed a BCom (Econometrics) degree at UP in 2000 and a BCom (Honours) degree at UCT in 2001 and is a CFA charter holder. Simon is a director of Allan Gray Investment Services Proprietary Limited. RUAN STANDER PORTFOLIO MANAGER BSc (Hons) FIA FRM Ruan joined Allan Gray in 2008 and is a quantitative and equity analyst as well as the portfolio manager of the Allan Gray Optimal Fund. Ruan managed a portion of client equity and balanced portfolios earmarked for associate portfolio managers from March 2013 and was appointed portfolio manager of these portfolios in November 2015. He has an Honours degree in Financial and Actuarial Mathematics, is a certified GARP Financial Risk Manager and a qualified actuary. ALLAN GRAY UNIT TRUSTS ANNUAL REPORT 31 DECEMBER 2015 8

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35. Allan Gray-Orbis Global Optimal Fund of Funds. 37. Allan Gray Bond Fund. 39. Allan Gray Money Market Fund. 41. Allan Gray Unit Trusts annual fees. 42. Allan Gray Unit Trusts total expense ratios and transaction costs. ALLAN GRAY UNIT TRUSTS. 43. Statements of comprehensive income. 47.
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