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Quarterly Commentary

2022 Q1 Comments from the Chief Operating Officer

Over the past quarter, the Russia-Ukraine conflict has dominated our minds, eclipsing lingering COVID-19 concerns and increasing the inflationary heat that has been notching up in the face of a strong recovery from demand and supply constraints on the back of the pandemic. Closer to home, the floods in KwaZulu-Natal piled more misery and suffering on a region still recovering from the 2021 riots. In both cases, the human tragedy is immense, and our thoughts are with those who are impacted.

On the investment front, these events reiterate that building well-diversified, resilient portfolios is the best defence against ongoing uncertainty. While major world events such as these tend to have less of an impact over the long term than you would think, the shorter-term direct and indirect consequences can be far-reaching. In the case of the current conflict, oil prices have increased sharply and are close to the highest levels experienced over the past decade. Furthermore, as Russia and Ukraine are global suppliers of agricultural staples, the conflict is likely to lead to an increase in food prices, with few remaining unaffected. There is also heightened market volatility.

The human tragedy of war is immense, and our thoughts are with those who are impacted.

Discipline and focus are key

In situations like these, our job as your investment manager is to remain disciplined and focused, assessing the impact on the fundamental value of businesses. We then cautiously invest where we see value and where businesses appear to have the potential to survive and thrive beyond prevailing conditions. This is when it pays off to have an investment philosophy that has been tested through market cycles. Our approach, which we share with our offshore partner, Orbis, enables us to take advantage of whatever types of opportunities the market presents. Alec Cutler, from Orbis, provides insight into how Orbis has been navigating the current investment environment, and discusses the positioning of the Orbis SICAV Global Balanced Fund.

… our job as your investment manager is to remain disciplined and focused, assessing the impact on the fundamental value ...

People often ask us to define our investment style/approach, referring to both us and Orbis as “value” managers. But as with many things in life, while labels can help, they sometimes fail to capture the full picture. In his in-depth piece, Grant Pitt explains why we prefer not to be boxed in, and why we rather consider ourselves “value-orientated” investors.

While the theory provides great context, and will really help you in understanding why we invest the way we do, we know that the story truly comes to life with examples from our portfolio – and we have two interesting pieces to share with you this quarter: Tim Acker looks at the abrupt reversal of fortunes at Naspers, assessing what has caused its fall from favour and interrogating the investment case, while Siphesihle Zwane discusses the green shoots emerging at Nedbank and explains why they may reward investors who have enough conviction to stay the course.

Regulatory changes aimed at improving your investment outcomes

With headlines dominated by the war, some may have missed an important piece of local news. In the February 2022 Budget speech, the National Treasury announced significant changes to the framework that governs how much of South African retirement savers’ portfolios can be invested outside South Africa, opening the door for additional foreign exposure and giving all of us the flexibility to benefit from the offshore opportunity set. While the global news continues to bring much uncertainty, and local investments look attractive, it is best to do some homework before simply diving in. Earl van Zyl’s piece is a great place to start.

Another recent change to take note of is the way that tax is calculated for living annuitants. If you are in this group, Carrie Norden’s article will help you understand the rationale behind this change and the impact it may have on your take-home living annuity income.

Of course, with any changes, we can reflect on how they would be broadly applicable, but if you need advice for your personal circumstances, it is crucial to talk to a good, independent financial adviser. Thandi Skade makes reference to this in this quarter’s Investing Tutorial, which looks at several rules of thumb that are used in investment decision-making and how applicable they are to individual circumstances.

Changing of the guard

After 13 years in the business, and four in my current position, it is an opportune time for me to pass the chief operating officer’s baton to Mahesh Cooper. He will assume the role on 3 May 2022, followed by a handover period of at least three months.

Mahesh is no stranger to the business, and indeed many of you may know him well. He was employed at Allan Gray between 2003 and 2017, serving as an executive director from 2006 to 2017 and heading up the Institutional Clients team for over a decade. More recently, in 2020, he was reappointed to Allan Gray’s board as a non-executive director. Mahesh has over 20 years of experience in financial services in both corporate and fintech companies, is highly respected by peers and industry colleagues and brings a wealth of knowledge of the SA market.

…it is an opportune time for me to pass the chief operating officer’s baton to Mahesh Cooper.

It has been a privilege to be at the helm of the business, despite the unusual conditions we have faced over the pandemic. Going forward, between Mahesh and Duncan Artus and their capable and passionate teams, you are in very strong hands.

I would also like to take this opportunity to thank you for your trust and support.

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