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Quarterly Commentary

2020 Q2 Comments from the Chief Operating Officer

When I wrote my comments in mid-April, we were just about one month into lockdown. We have now passed 100 days, with the health and economic crises leaving an indelible impression on us all. My deepest sympathies go to all those who have lost friends and family members to this virulent virus.

We are now on Advanced Level 3 of lockdown. There is an increased sense of normality to our daily lives from a reduction in the restrictions – as opposed to the resolution of the coronavirus. In South Africa, we are still approaching our peak of infections, so it remains a time of caution.

I used to do some canoeing, and invariably when you are most tired, you are likely to make mistakes and fall out your canoe, which then compounds the tiredness. So, a golden rule is to force yourself to be extra vigilant when you least feel like it. While we feel like things are returning to normal, they are not yet there, and we should continue to be careful.

Not knowing what the future holds requires us to consider a number of potential outcomes and opposing risks

Keeping ourselves informed is critical, but it can be very hard to figure out what to focus on – and it’s important not to anchor on one piece of data, or one opinion, which is what seems to be happening. In his article, Rory Kutisker-Jacobson looks at how our perspectives might change if dashboards and commentary reported different COVID-19 statistics, including related impacts and the cost of lockdown on society at large. 

While Rory is not an epidemiologist, he is skilled in researching and analysing data, and uses this example to illustrate how risk and perception are managed in the investment process. Not knowing what the future holds requires us to consider a number of potential outcomes and opposing risks. This requires us to be rational, seek out dissenting opinions, and consider incomplete and often conflicting information. We acknowledge that we do not know what the future holds, and so we seek to buy companies trading at a significant discount to our estimate of fair value to account for a variety of outcomes.

Our approach is illustrated in two pieces from other members of our local investment team as well as a piece from our offshore partner, Orbis. Tim Acker evaluates the South African banking sector’s outlook as our banks re-evaluate their models to deal with the potential implications of the coronavirus pandemic and take proactive steps to minimise the fallout. Meanwhile, Varshan Maharaj looks at the telecommunications sector, investigating whether mobile network operators present an investment opportunity.

Turning to global markets, John Christy, from the Orbis office in Vancouver, and Stanley Lu, from Hong Kong, contrast the opportunities emerging from the US and Asian tech spaces. While Orbis has not entirely shied away from the popular so-called FAAMG stocks (Facebook, Amazon, Apple, Microsoft and Google parent Alphabet), owning some Facebook and Alphabet stocks today, they are seeing greater opportunity to the East, in Chinese technology companies such as NetEase, Tencent and Alibaba.

It is useful for every long-term investor to have a safety net in the form of an emergency fund

Invest for the long term, but maintain some liquidity

Life does not always go according to plan – as we can all attest from the current crisis – and we may need to access our investments to see us through these times. However, withdrawing from markets in a downturn is not ideal: Not only do we land up locking in losses, but we can also compromise our long-term goals.

It is useful for every long-term investor to have a safety net in the form of an emergency fund, which is easily accessible and reduces the temptation to access your hard-earned investments. Noluyolo Betela discusses the ins and outs of putting an emergency fund in place in this quarter’s Investing Tutorial. 

Philanthropic efforts

The COVID-19 crisis has resulted in an urgent and massive need for humanitarian and economic support for communities and enterprises. Last quarter I reported that the various Allan Gray entities had all made donations. In his piece this quarter, Anthony Farr, chief executive officer of Allan & Gill Gray Philanthropy in Africa, describes the principles adhered to and the response of the different entities.

Investment team update

I take this opportunity to bid farewell to some of our investment team colleagues and announce a number of resultant promotions.

Chief Investment Officer Andrew Lapping will be leaving Allan Gray towards the end of this year, as his 20th year at the firm comes to a close. Andrew has decided to take a well-deserved break with the intention of exploring opportunities outside investment management.

I am pleased to announce that Duncan Artus will take over the reins as chief investment officer from Andrew, effective 1 September 2020. Duncan is well known to those familiar with Allan Gray – enjoying the respect and trust of his colleagues and our clients. Duncan joined the firm in March 2001 and has been managing a portion of client equity and balanced portfolios since January 2005. With 20 years’ experience – 15 of those as portfolio manager at Allan Gray – Duncan is a well-versed and worthy successor.

Mark Dunley-Owen, who manages a portion of our clients’ stable and fixed interest portfolios, will hand over some of his responsibilities as he joins the team managing the Orbis Global Balanced Strategy at our sister company, Orbis.

We say goodbye to Leonard Krüger, who manages a portion of the stable portfolios, as he pursues opportunities outside Allan Gray.

Structured for succession
Departures create exciting opportunities for other investment team members. Our approach to succession planning ensures depth in the team, and we have a strong bench to draw from.

In addition to Duncan’s promotion, we have expanded the portfolio management responsibilities of others in the team. In our equity, balanced and stable portfolios, we have appointed three new portfolio managers: Rory Kutisker-Jacobson, Tim Acker and Sean Munsie. Varshan Maharaj, Rami Hajjar and Kamal Govan have also been promoted to portfolio managers and will focus on African and frontier market equities.

Andrew and Mark’s South African fixed interest portion of the balanced portfolios will be split between existing bond and money market portfolio managers Londa Nxumalo and Thalia Petousis, while Sandy McGregor will retain his existing responsibilities. Londa and Thalia will assume full responsibility for the Allan Gray Bond Fund and the Allan Gray Money Market Fund respectively, which they currently co-manage with Mark.

The newly appointed portfolio managers have all been with Allan Gray for a number of years. Their demonstrated skill, dedication and passion for investments will be a benefit to our clients.

Primed for the future
Developing strong succession within our investment team has been a hallmark of our firm since its founding in 1973, and we congratulate our new portfolio managers on their promotions. We have every confidence that under Duncan’s leadership, our investment team will continue to excel. We remain committed to delivering strong investment performance and building your trust and confidence in us.

We thank Andrew, Mark and Leonard for their exemplary service and dedication and wish them well in their future endeavours.

Change is a necessary and expected part of life and brings with it opportunity. Thank you for your continued trust and support. Keep safe and well.

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