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Quarterly Commentary

2018 Q2 Comments from the Chief Operating Officer

This is my first issue of Quarterly Commentary in my new role as chief operating officer. I am excited and privileged to help lead Allan Gray forward, continuing to develop a healthy business that produces positive client outcomes and remains true to our core values.

Allan Gray has a long-term mindset. Much of what is valuable and effective is already firmly in place and the direction has been clearly considered. I believe in continuity and consistency, so I plan to build on the foundation of what we have been doing, as opposed to switching direction, and I will certainly resist change for the sake of change. I also believe that Allan Gray has been successful by focusing on doing a few things really well, and I will continue with this focus and drive for excellence.

In the business world, progress is almost always expected, and you constantly need to challenge yourself and look at how you can improve. Good client service today is expected service tomorrow, and good technology today is obsolete technology tomorrow. So while I am not planning on large directional shifts, I will focus on how we improve and evolve. This takes introspection, flexibility and the willingness to adapt. I look forward to this and the positive impact I hope this will have on both client and business outcomes.

The investment environment

I take over during interesting times, locally and internationally. So far, 2018 has reminded us all that when investing, we need to fasten our seatbelts and endure a bumpy ride.

Global investors have been spooked by a combination of developments, including a slowdown in global economic activity, the threat of trade wars and uncertainty about the consequences of further rate hikes in the United States. The risk that these could tip the world into recession is a big concern. In his piece this quarter, Sandy McGregor takes the economic temperature of the world, so to speak, as he looks back to see how we got to where we are. Meanwhile, bearing this macroeconomic context in mind, Alec Cutler from our offshore partner, Orbis, discusses how Orbis is investing in the current climate and where they are finding opportunities.

Back on home shores, the reality of the challenges facing the country is dampening “Ramaphoria”, with local bonds and South Africa-focused equities (such as banks, insurers, retailers and industrial companies) falling. This again shows us how susceptible markets are to changes in sentiment. We remind you not to react to these short-term movements by disinvesting; rather focus on your long-term goals and remember that volatility tends to smooth out over time. On the investment side, we see these dips as a buying opportunity as we focus relentlessly on the long-term prospects of each company in which we invest.

It takes discipline not to react to the euphoria and despair of the market and to rather focus on company fundamentals when making investment decisions. But this approach requires conviction and temerity, as Andrew Lapping illustrates in his piece on the platinum sector.

Are you saving tax-free?

Changing gears from the investment environment to your personal investments takes me back to a conversation I was having with a friend the other day. She was asking about long-term investment options, but wasn’t keen on the restriction of traditional retirement savings products. While there are plenty of options, I think the best starting point is a tax-free investment account. For anyone with a long time horizon, this is an ideal product as you pay no tax on the interest or capital gains – a considerable saving over time.

Tax-free products (available in various formats through your bank or investment manager) have been lapped up by the market: According to a survey conducted about a year ago by Intellidex, a financial research and media firm, there was a substantial increase in the number of accounts opened in the 2016/17 tax year compared to the previous year, with the number going up from just over 260 000 during the 2015/16 period to 460 609 accounts.

To learn more about the benefits and restrictions of this product, read Mthobisi Mthimkhulu’s Investing Tutorial.

Time and your investments

Time is an essential ingredient in successful investing – it gives your money time to grow thanks to the benefits of compound interest. Most of you will be keenly aware of the emphasis we place on time, and how this reflects in our advertising. Zwelethu Nkosi’s article explains the rationale behind our style of storytelling, how we approach advertising, and how this ties back to your investments.

There are also many real-life success stories to share from the Allan Gray Orbis Foundation, which over the past 13 years has nurtured and supported 43 high-impact entrepreneurs who have, in turn, created 679 jobs and added a combined R1.5bn to the economy. I encourage you to read Yogavelli Nambiar’s Foundation update to learn more about these successes.

Paying tribute

Rob Dower’s last day of service as chief operating officer was in early June, but he will remain involved in Allan Gray both as a board member and within the business. On his watch, the business has grown and strengthened and, most importantly, we have been able to deliver strong returns and client service to you. Rob’s unique brand of leadership, clear thinking and humility have left a strong impression on our culture and business. I would like to thank him for his immense contribution and the fantastic example that he has set for me to emulate.

I’d also like to pay tribute to Simon Raubenheimer, who joined Allan Gray in February 2002 and has been managing a portion of client equity and balanced portfolios since July 2008, when he was appointed as a portfolio manager. Simon has decided to leave Allan Gray to pursue personal interests. I would like to thank him sincerely for his outstanding contribution to the success of our clients and our company and wish him all the best for his new chapter.

An important strength of our investment process is that it provides for multiple portfolio managers to each manage a slice of our clients’ portfolios for which they are individually accountable. Not only does this allow for a diversity of views to be expressed, it also facilitates succession. When a portfolio manager moves on, their ‘slice’ is re-allocated among the remaining portfolio managers. Re-allocations have occurred at regular intervals throughout our history and our portfolio manager system is well-suited to adapt to these changes.

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