Manager Research

In this note, we discuss our decision to upgrade two Allan Gray Australia funds. In addition, we discuss our thinking on the Fidelity European Growth fund which we have rated Tier 2.

Allan Gray Australia - Fund Range Reviewed

We have recently reviewed the Allan Gray Australia fund range and have decided to upgrade the Stable fund to Tier 1 and the Balanced Fund to Tier 2. We have maintained the Tier 1 rating on the Equity Fund.

The Allan Gray Australia business is a relatively small, independent business with a shareholding structure that aligns well with investors. The investment team is also relatively stable and well lead. In addition, we have and continue to rate the Australian equity process highly.
 
Within the Stable fund, greater evidence of stock selection and asset allocation skill has become more apparent, and we find that the team has made sound investment decisions during key periods in the fund’s history that have been consistent with the investment process. Ultimately all of this is backed by a strong Australian equity capability.

On the Balanced fund, we have in the past been somewhat concerned about the level of integration between the Australian and Orbis portions of the fund, but during our most recent review those concerns have been allayed somewhat. Ultimately, we are relatively positive on the major parts of the fund, with the only minor concern being the local fixed income portion. However, as we understand it, that portion of the fund is managed quite conservatively and shouldn’t materially detract from the overall investment proposition of the fund.

Fidelity European Growth Fund - Reviewed

We have recently completed our review of the Fidelity European Growth Fund and have maintained the Tier 2 rating on the fund.

The fund follows a relative value investment strategy, aiming to identify quality companies at attractive prices. However, since late 2018 the fund has faced some significant performance headwinds, most recently following the COVID-19 Drawdown in March 2020 and the subsequent resurgence in growth and quality stocks.

With that being said, we believe that the investment team is skilled, and the lead portfolio manager is very experienced. We spent time during this review assessing the fund’s long term performance track record and are comfortable that the fund has the necessary attributes to generate stronger performance in the future.