2016 was an excellent year for our investors, a very welcome turnaround after the difficulties of 2015.
But it wasn’t all plain sailing, in fact we got off to a tough start.
The market trends we experienced in 2015 continued, as those sectors which had performed poorly last year carried on underperforming. The materials and energy sectors, where the funds are heavily invested, continued to suffer, but as contrarian investors we took the opportunity to increase our holdings in our preferred shares while prices were depressed.
This really paid off and what started as a tough year certainly turned around for our clients. The Allan Gray Australia Equity Fund is up 27% year-to-date, outperforming its benchmark by 20% (to 30 November). This significant outperformance means that most investors in our flagship fund have now enjoyed strong returns in excess of the benchmark over most periods to date.
A change in fortune, but we stayed the same
This was great news for a Fund that celebrated its tenth birthday this year. It was a stark reversal of 2015, the hardest year in our history, particularly with the passing of our founder Simon Marais but also with the underperformance of the Equity Fund. We are deeply grateful to the clients who stuck with us and believed in our philosophy. We like to think that their patience has now been rewarded, although it will surely be tested again.
The most important thing is that we are consistent, then our clients will always know what to expect when they invest with us. The past few years have clearly demonstrated how we stick to our philosophy in both good times and bad.
It’s important that our clients understand what they are buying and what an investment in Allan Gray brings to their portfolio. There will always be periods of underperformance, as we invest in shares that are out of favour with the market and it sometimes takes time for these shares’ value to be recognised. A contrarian investment approach is never comfortable but the consistency in application will create comfort over time.
A year of milestones
Increasing investor understanding and awareness was partly the reason behind launching our first Australian advertising campaign during the year. We are extremely proud of the results and the feedback from clients has been excellent. We look forward to building on that in the future.
Other landmarks included releasing a new website, designed and built to better service our clients. We hope you agree that this is a better experience all round, with more relevant information easier to find.
The positive news continued through the year as we brought a new portfolio manager on board. Dr Suhas Nayak joined Allan Gray as an analyst in 2011 and will now be a co-portfolio manager on the Equity Fund, which is in line with our multi portfolio manager philosophy.
Clients will benefit from the expertise and intellect that he brings to the portfolio; like all our analysts he’s highly qualified, with a Bachelor of Science with Honours from the California Institute of Technology and a Doctor of Philosophy in Mathematics from Stanford University. Let’s hope the same outperformance he contributed to this year can be mirrored over the next ten years (no pressure Suhas!).
The last, but by no means least, piece of good news for this year is that we are very excited to have a new global fund offering. Allan Gray Australia will be bringing the Orbis Global Equity Fund (Australia Registered) to the retail advice industry. Orbis is our sister company and employs the same investment philosophy and approach. For investors who believe in the Allan Gray long-term, contrarian investment philosophy this is an opportunity to broaden their exposure into global equity markets. You can learn more about the Fund in this blog post, or please contact us for further information.
At Allan Gray we are not in the business of crystal ball gazing; we’ll leave that to the economists out there. Nobody knows what 2017 will bring, but we do know that there is a lot of uncertainty with strong markets and political upheaval only two of the concerns.
Outperformance doesn’t come in straight lines, it comes in lumps, and although we’ve delivered a big lump of outperformance in 2016 which has benefitted our performance over most periods to date, it is only a very short period, especially considering the average person’s long-term investment horizon.
While we don’t know for certain how long the outperformance will continue, what we can say for certain is that our philosophy won’t change. We will continue to manage our Funds in the same way and stay focused on delivering for our clients over the long term.
Wishing you all the best for a happy festive season and a prosperous new year.
JD de Lange holds a B. Proc Degree (University of Pretoria) and is an admitted attorney and CFP in South Africa.
Performance of the Allan Gray Australia Equity Fund noted in this article relates to Class A units.