Manager Research

We have completed our latest review of the Allan Gray unit trust range and made no rating changes. 

We apply the following rating scale:

Tier 1

This is our top rating. We are satisfied that this offering is managed according to a well-considered process, applied consistently and supported by the business.

Tier 2

This is a good fund, however we have some minor concerns which may be people, process or business related.

Tier 3

This is a negative rating. We have one or more fundamental concerns about aspects of this fund and believe there are better alternatives.

Business and Ownership

We continue to rate Allan Gray’s business highly. The firm is privately owned and controlled by the Allan & Gill Gray Foundation, which was set up to hold the business in perpetuity. Staff hold a direct stake through a share trust. With no listed shareholder or outside capital partner, the business is well aligned with its long-term, contrarian approach and can sit through periods of underperformance without pressure to change how it invests.

Investment Team

Our view of the team remains positive, particularly on its tenure, experience and depth. We met portfolio managers Tim Acker, Sean Munsie and Thalia Petousis, and chief operating officer Mahesh Cooper. Allan Gray has managed several CIO and COO transitions well in the past, but any change at CIO level adds some uncertainty. We will be watching it closely, although we don’t foresee the current CIO, Duncan Artus, leaving soon.

Investment Philosophy and Process

The philosophy and process remain sound and rigorous and have not changed. Allan Gray remains a bottom-up, valuation-driven and contrarian manager with a long investment horizon. The one notable development is the offshore sleeve introduced after changes to Regulation 28 raised the offshore limit to 45%, which brings local and offshore ideas together in one portfolio. The rationale makes sense, but we want to see more evidence that it adds value.

Investment Decision-Making

There is good evidence that the process has been applied consistently and has delivered good long-term outcomes for clients. Performance across the range has been good. The SA Equity Fund has lagged the JSE Capped ALSI recently because it held less of the precious metals shares that drove much of the index’s return. This reflects positioning rather than a problem with the process.

Our Tier 1 rating on the SA Equity Fund, together with our positive view of the underlying Orbis funds, underpins the ratings on the Balanced and Stable funds.

Why the Bond and Optimal Funds are not Tier 1

Bond Fund (Tier 2): The fund is managed with an absolute-return mindset based on the team’s view of fair value for bonds, which we regard as a credible approach. However, high cash rates have created a favourable environment for a conservative approach to fixed income. We see a greater risk of relative underperformance if cash rates and bond yields fall materially, which is why we do not have the same conviction as in the Tier 1 funds.

Optimal Fund (Tier 3): Our main concern is the fund’s size. It has had material outflows and now manages less than R1 billion, which increases the risk that it could eventually be closed or merged. That limits our ability to take a more positive long-term view.

Fees

We continue to regard fees across the range as relatively high, particularly on the clean platform classes, although we acknowledge the steps Allan Gray has taken to improve its overall proposition.