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Quarterly Commentary

2022 Q2 Comments from the Chief Operating Officer

I am in the privileged position of returning to Allan Gray after having left just over five years ago. Even though five years may not seem like a long time in the bigger scheme of things, it is incredible how the world has changed in those five years, and particularly in the last three. Personally, I draw comfort from the fact that, despite all the changes we have experienced and adaptations we have had to endure, the business remains true to being focused on generating long-term wealth for our clients.

This is a function of an unchanging investment philosophy, which has remained the same since the firm was founded in 1973. An investment philosophy is essentially how an asset manager thinks about investments; it is a set of principles that guide the investment process. An asset manager should be confident in their investment philosophy and it should be applied consistently, regardless of market conditions. This means that there will be times when their investment philosophy is out of favour with the markets, resulting in underperformance. However, the real test of conviction is whether the asset manager stays true to their investment philosophy in the face of that underperformance.

Volatility persists

There has been no respite from the extreme events the world has had to face in the last six months, be it war, or closer to home, devastating flooding, surging fuel prices, high inflation and rising interest rates or falling asset prices. Given the current highly volatile state of the world, this quarter we include both a local and global positioning piece. Importantly, while we adopt a bottom-up approach to investing, which focuses on business fundamentals and value, we don’t ignore economic factors; we understand that we must be cognisant of the environment in which we make investment decisions. Sandy McGregor discusses the increasingly turbulent response of global financial markets to rapidly rising inflation, while Thalia Petousis cautions us against pinning our hopes on strong commodity prices entirely alleviating South Africa’s fiscal woes.

… despite all the changes we have experienced and adaptations we have had to endure, the business remains true to being focused on generating long-term wealth for our clients.

In their piece, Gladness Rupare and Martine Damonse unpack how we build resilient multi-asset class portfolios, like our Balanced Fund, in light of such extreme events. Falling asset prices provide opportunities for stockpickers like ourselves and our offshore partner, Orbis. Graeme Forster, from Orbis, shares some insight into how Orbis currently sees sources of risk and opportunity in the global markets. Given the increased focus on environmental, social and governance factors, Raine Adams reminds us of our approach to responsible investing in the context of our investment philosophy.

The past two and a half COVID-affected years serve as a reminder of the frailty of life. In this quarter’s Investing Tutorial, Felicia Hlophe outlines what we should be thinking about with regard to our children and our investments when we are no longer around.

Farewell to Rob Formby

Finally, I would like to take this opportunity to thank Rob Formby for his 13 years of committed service as he passes the baton to me. He has steered the firm ably through the pandemic and all its associated challenges with a characteristic calm and steady approach. His focus on continual improvement and disciplined execution will be felt across the business for many years to come.

I would also like to thank all of you for your trust and commitment and to pledge mine as I settle into my new role.

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