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Quarterly Commentary

2019 Q2 Comments from the Chief Operating Officer

You’ve probably heard the saying, “if you don’t stand for something, you’ll fall for anything”. This modern proverb is as true for investing as it is for your life.

Before you invest, you should have a clear understanding of your “why” – the purpose for putting money away. This will keep you committed when you are tempted to stray. A good place to start is to ask yourself what you truly value. While we are all different, we tend to value some of the same things: taking care of family, educating children, being financially secure or having a comfortable retirement. Some purposes will be easier to define than others. Saving for your child’s education is a more tangible goal than, say, saving to have enough money to pursue future options, but the latter is still a defined purpose, although it can feel more abstract.

No matter your “why”, research shows that we are more likely to take action, and stick to it, when we have a clear intention. A tangible purpose will help you to focus on your goals and stay the course during difficult times, such as we are experiencing. Being patient during these periods is an essential ingredient in creating long-term wealth.

Patience is precisely what is needed for our style to produce good investment results over a complete market cycle

Our purpose

It is also important that an investment manager have a clearly defined purpose. Ours is one that has served our clients well for over 45 years: to help you create long-term wealth. We have a simple approach to meet this purpose: We identify good investment opportunities through robust and careful research to determine the true value of a company, buy shares when we think they are trading below that value and sell when we believe they have reached their worth – regardless of popular opinion.

The performance of our funds is driven by this approach – in particular our bottom-up stock selection. While this has proven to pay off over time, it does result in periods of underperformance. The past few months are a case in point, with the Allan Gray Equity, Balanced and Stable funds underperforming their benchmarks as our overweight positions in British American Tobacco, Sasol and Glencore performed poorly relative to the market. Further increasing the pain, the underlying share selection in the Orbis funds also experienced a tough quarter and, combined with the strengthening of the rand against the dollar, negatively impacted the funds’ offshore returns.

In an environment where low volatility stocks have become increasingly more expensive, the Orbis investment team has found opportunities to increase their positions in companies that are currently shunned by the market. In his update on the Orbis Global Equity Fund, Ben Preston explains that while many of these companies have real long-term growth expectations, the current share prices don’t reflect their fundamental value.

While it is difficult to ask you to remain patient, that is precisely what is needed for our style to produce good investment results over a complete market cycle.

Time to hunt for bargains?

Taking a look at the domestic market, Duncan Artus considers whether the decline in share prices and muted economic growth have recreated the “flash sale” of 2002, when consumer shares dramatically underperformed and provided a fertile hunting ground for value investors to snap up good quality stocks at a bargain and generate outsized returns.

This past year has been a reminder that we are part of an interconnected world where we can’t always predict, let alone control, what happens in the investment universe. The ongoing trade wars are a good example. In the era of a Donald Trump presidency, stock markets can be sent reeling with just a simple tweet. Sandy McGregor discusses the ongoing US-China trade war and the possible impact on global and local economies, as well as financial markets.

Rely on the right information

Investment noise, such as trade wars and short-term underperformance, creates uncertainty and concern among investors. During such times, it is even more important to rely on the right information to make good investment decisions. This includes being more circumspect about the investment advice from one’s social circle. In the Investing Tutorial, Lettie Mzwinila discusses the pitfalls of making investment decisions based on well-meant information shared by friends and family.

On the topic of family, Tim Molloy delves into unclaimed assets. According to the Association for Savings & Investment South Africa, more than R17bn lies potentially unclaimed in unit trusts and policies due to beneficiaries being unaware of these investments after the investor dies, emigrating investors abandoning their assets, or investors simply losing track of their investments. Tim explains how these assets are dealt with, what you can do if you suspect you have unclaimed assets, and how to avoid these situations to begin with.

We stand by our purpose: to create long-term wealth for you, our clients

A spirit of significance

Finally, in her update this quarter, Yogavelli Nambiar discusses the purpose of the Allan Gray Orbis Foundation, which is to seek out individuals who are determined to solve social problems and nurture their “spirit of significance”. If developed from a young age, the awareness that personal satisfaction comes from empowering oneself to serve others can lead to more individuals being driven to make an impact in their communities and society at large through their employers or entrepreneurship. Yogavelli profiles two Fellows from the Association of Allan Gray Fellows who embody this spirit.

We stand by our purpose: to create long-term wealth for you, our clients. We also thank you for your ongoing support despite a tough performance environment.

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