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Quarterly Commentary

2023 Q2 Comments from the Chief Operating Officer

As I mentioned last quarter, this year we celebrate our 50th anniversary. Milestones naturally provide an opportunity for both reflection and prospection: It is always insightful looking back on lessons learnt, considering what is currently happening in the world, and making sure that our portfolios account for multiple scenarios and possible outcomes. The various articles in this issue of our Quarterly Commentary reflect some of these themes.

Our Marketing team has spent time speaking to our past and present chief investment officers and chief operating officers to capture learnings and memories for current and future generations. A video of these interviews is available on our website, and provides some insights into our beginnings, our culture and our values. A key thread that emerges is how, over the generations of our leaders at Allan Gray, our philosophy has been consistently applied and we have always strived to act in our clients’ best interests.

An area in which this is apparent is our approach to investing responsibly. Sustainability, which includes good governance, is embedded in how we invest on behalf of our clients, manage the business and interact with society at large. We have always considered environmental, social and governance (ESG) factors as part of our investment process and have a long history of responsible stewardship – as you can see from the quote below, which I have lifted from our latest Stewardship Report, but which first appeared in our Q4 2003 Quarterly Commentary.

“Allan Gray’s relationship of trust with its clients and its investment ethics require not only that we make buy and sell decisions with our clients’ best interests at heart, but also that we encourage our clients to exercise their rights as shareholders in favour of sound corporate governance. In our opinion, the key components to sound corporate governance are: effective disclosure, which enables investors to make informed decisions; accountability of those entrusted with running the business for their actions, both management to the board and the board to shareholders; and aligning the interests of managers and shareholders so that managers’ incentives are designed to reward them for creating value for shareholders.”
– Stephen Mildenhall, chief investment officer, April 2001 - February 2008

We aim to be a great investment manager that integrates ESG well in our investment approach and decision-making, rather than an ESG-focused company that manages clients’ assets. If you would like to learn more about our approach, and are interested in case studies and practical examples, please read our latest Stewardship Report, which looks back on our efforts over 2022.

If this subject piques your interest, you may want to listen to our latest podcast. Nshalati Hlungwane, from our Institutional Clients team, is in conversation with ESG analyst Raine Adams and governance analyst Nicole Hamman about our approach to investing with ESG in mind.

Applying our investment philosophy and process to identify attractive stocks has always been fundamental to who we are and how we manage money for our clients.

Podcasts are a relatively new feature in our content arsenal, and we have delved into some interesting investment-related topics over the last few months. You can access these via our website or subscribe to The Allan Gray Podcast via your favourite podcasting platform.

The current investment context

The global economic outlook is not rosy. As Sandy McGregor discusses in his piece this quarter, there is a widely held view that developed economies are about to enter either a recession or, at the very least, a serious economic slowdown.

Sandy cautions that we should not expect the world to simply return to the relatively stable conditions that prevailed between 2010 and 2019. We face challenges that governments and central banks will find difficult to control. The turbulence of the past two years could be the new norm.

Opportunities emerge

Of course, it is important to remember that there are always countries that prosper despite global economic difficulties, and even within economies that are struggling, investment opportunities emerge. Japan is a great example: While it has been a depressing market overall for investors, it has been a tremendous hunting ground for active valuation-oriented stockpickers. The market’s cyclicality feeds big swings in greed and fear, providing a great setup for contrarians to exploit. Brett Moshal, from our offshore partner, Orbis, illustrates this in his piece.

Sticking with the theme of finding opportunities in unusual places and embracing contrarian ideas, Rami Hajjar looks at some of the opportunities in emerging and frontier markets. He considers currency dynamics, focusing on how currency impacts returns, and how we think about this factor when investing in the emerging and frontier universe.

These themes all point to our focus on stockpicking: Applying our investment philosophy and process to identify attractive stocks has always been fundamental to who we are and how we manage money for our clients. As we celebrate our golden jubilee, Nick Curtin discusses one of the most significant events in our history – the launch of our first unit trust in 1998, the Allan Gray Equity Fund.

Several generations of investment professionals applying the same investment philosophy and repeating the same investment process over 50 years of market cycles has created an organisational DNA that is very difficult to replicate. The firm has been intentionally designed this way so that we can harness the power of compounding returns over long periods of time for our clients. Our track record is not just a number – it is a testament to repeatability. We protect our investment philosophy and investment process like the crown jewels that they are. Delivering on our promise to clients over the decades ahead depends on it.

Planning for the future

One of your longest-term investments is likely to be your retirement savings. Planning adequately for retirement is essential to ensure your long-term financial well-being. A key aspect of retirement planning is choosing the product, or combination of products, that will best enable you to meet your retirement goals. Earl Van Zyl and Tiaan van Wijk discuss the various investment products typically used to save for retirement, using examples to bring the insights to life.

As clients, you access our investment expertise through our unit trusts, and your investment success depends on our investment performance. However, client behaviour also plays a role. Of course, no client wants to lose money. In fact, as humans, we have a built-in aversion to loss. Unfortunately, by attempting to avoid short-term losses, many of us jeopardise our ability to achieve long-term real returns. In this quarter’s Investing Tutorial, Nomi Bodlani discusses the importance of taking on enough risk, and staying the course, to ensure you reach your investment goals.

I hope the insights we share go some way towards helping you remain committed to your investment goals and time frames. Thank you for trusting us with your savings.

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