South Africa: Allan Gray Holds Up Better Than Most

Source from:  Business Day (Johannesburg) 4 November 2008 11/05/2008

AMID the market massacre during the third quarter of this year, asset manager Allan Gray managed to beat its benchmarks and show a couple of positive returns. Many local asset managers suffered losses between June and September, when the subprime problem and the credit crunch appeared to reach a crescendo, but Duncan Artus, portfolio manager at Allan Gray, said yesterday that what with his company's avoidance of stocks where earnings were too high, Allan Gray's performance relative to its peers had been "very good". As Artus noted, SA has not escaped the subprime crisis from an asset point of view - the JSE all share index is 60% off its highs this year in dollar terms. But in the September quarter Allan Gray's equity fund returned an annualised -9,3% while the JSE all share dropped -20,6%. Allan Gray's balanced fund lost -2,6% but the average balanced fund was -5,1% down. Its stable fund managed a positive return of 2,7% while cash on a relatively high yield returned 2,5%. The figures over one year show the same trends. And over three or five years Allan Gray has consistently outperformed its benchmarks. "Now people are surprised by how suddenly asset prices have changed," Artus said yesterday. "People want us to say 'it's OK'. But that's not our job. We want to give the realistic view." Allan Gray's view is visible in its stock choices. Unlike many other asset managers, Allan Gray does not hold construction shares. Artus said the great volume of construction going on in Dubai was pushing up prices and causing a bubble. But the asset manager has bought into British American Tobacco (BAT). This stock dual listed in SA a week ago, and Allan Gray is holding 8,8% of the shares in issue, making BAT the third largest holding in its equity fund. Brewer SABMiller and telecoms operator MTN were the top two stocks in the equity fund while Allan Gray still held 5,2% of Harmony Gold. In the past some commentators thought Allan Gray was mad to hold a significant stake in a gold company, but the bet paid off when commodity prices rose and took share prices with them. Nonetheless stockbrokers Imara SP Reid said yesterday they still had reservations about Harmony's portfolio. "Despite having a number of quality assets within the portfolio their benefit is not fully exploited because of the mediocrity that comes with the other assets. We believe management still has to lose at least two more underperforming assets and focus on quality," the brokerage said. It believed Harmony's stock was fully valued. Imara's preference was for Gold Fields. Many avoided mining stocks altogether because they thought their price:earnings ratios made them too expensive. But Allan Gray, which cares about bottom-up long-term valuations, avoids companies with unrealistically high earnings while not getting too hung up on the price: earnings ratio. Enditem