The image title
Quarterly Commentary

2023 Q4 Comments from the Chief Operating Officer

It is hard to believe that almost four years have passed since the COVID-19 pandemic and the first lockdown, which began in mid-March 2020. While time seemed to slow down over that period, it feels like the pace has picked up rapidly over the ensuing years, with markets and economies responding and reacting in often unpredictable ways – making volatility a prevalent term.

Why does time seem to pass faster as we age? One common explanation is that time is a relative concept, and our perception of how quickly it moves is linked to how long we have lived, and our longevity. How long a year feels is inextricably linked to what percentage of your life it comprises. A single year is 20% of a five-year-old’s life, so it will feel longer than a year feels for their parents.

With that in mind, perhaps I shouldn’t be surprised at the speed at which 2023 went by. It was a memorable year for the business, with our 50th anniversary providing a lens for reviewing our past and planning for the years to come. We are thankful for the trust placed in us by our clients over the decades, and we continue to work hard to maintain that trust. We are a business focused on long-term wealth creation, and time is a determining factor in all we do – from the way we invest, to influencing the stories we tell in our advertising. This theme forms a golden thread through the articles in this issue.

We are thankful for the trust placed in us by our clients over the decades, and we continue to work hard to maintain that trust.

Performance review and investment context

With long-term wealth creation top of mind, our Balanced, Stable and Equity funds experienced strong absolute performance in 2023 and satisfactory relative performance, with the Balanced Fund returning 13.0%, underperforming its benchmark by 0.3%, the Stable Fund returning 11.2%, outperforming its absolute benchmark by 1.9%, and the Equity Fund returning 13.9%, outperforming its benchmark by 7.4%.

In his latest investment update video, our chief investment officer, Duncan Artus, talks about some of the trends that influenced the market movements in the last year, and what to look out for in 2024 – an election year for roughly 45% of the global population, representing the highest percentage in a single year in modern history. It’s anyone’s guess what the political landscape will look like a year from now.

Election outcomes, and their impact on policy and spending, are uncertain. Luckily, as bottom-up investors, our investment approach doesn’t hinge on macroeconomic or political outcomes; our philosophy is firmly grounded in deep research and analysis of the worth of companies. However, paying attention to the context is important for portfolio construction as political, monetary and fiscal policies can impact asset valuations.

Looking at the local investment context, it is probably stating the obvious to say disillusionment is pronounced in South Africa at the moment. Increasingly, there is realisation that the South African economy is not growing fast enough to support the size of the state or the size of our debt. It will be interesting to see how this is accommodated for in the national budget in February, balancing the need to cut costs while avoiding reducing the budget for infrastructure maintenance and expansion. Allowing the private sector to play a greater role in the energy, road, rail and water spaces, means we can potentially mitigate such risks.

An example of successful private sector intervention is playing out in the energy domain. The government recently estimated that 5.6 gigawatt (GW) of new private capacity should be online by 2025. This is more than either Kusile or Medupi generates, each of which has a capacity of 4.8 GW. The building of Medupi and Kusile began back in 2007 and 2008 respectively, and their combined 9.6 GW is expected to be fully online for the first time in 2025.

Between rooftop solar and larger private generation projects, the private sector will ultimately bring over 8 GW onto the grid in under four years (despite significant constraints). After experiencing 335 days (!) of loadshedding during 2023, resulting in a severe contraction in economic growth, this light at the end of the tunnel is something to celebrate. In her piece this quarter, Raine Adams assesses the current situation and looks at what is being done to improve the stability of our electricity supply.

Our investment philosophy in action

Negative sentiment is contagious and seems to take the sheen off assets indiscriminately. This presents opportunities for us as long-term investors, who look to buy shares that are priced well below our estimate of their long-term value and sell them when they reach their true worth. Standard Bank is one example. Ghiete van Zyl discusses the investment case.

Our offshore partner, Orbis, shares our investment approach. In his article, Orbis President Adam R.Karr notes that the true magic of generating returns for clients not only comes from the returns achieved, but also time. The longer the investment holding period, the greater the compound effect. Adam also unpacks the returns over the last year, and applies past experience to what the future may bring.

Everything comes around, and all that jazz

In her piece, Zwelethu Nkosi discusses our approach to advertising, homing in on the key messages from our latest advert, aptly titled “Everything comes around”. The advert is about how true skill and craft, underpinned by commitment and perseverance, can withstand fads and stand the test of time. When investing, one needs commitment, patience and, most importantly, time. It can be incredibly difficult to stay the course through volatility and periods of underperformance, but over the last five decades we have learnt that conviction and perseverance are rewarded when it comes to building long-term wealth.

Maximise tax benefits before the end of the tax year

In this quarter’s Investing Tutorial, Carla Rossouw explains the benefits associated with retirement annuities and tax-free investments, looks at how much to contribute and discusses the trade-offs to consider. Her piece is timely, as there are annual tax benefits associated with these products, which are forfeited if you don’t make use of them before the end of the tax year on 29 February 2024.

Allan Gray Orbis Foundation update

At its core, the Allan Gray Orbis Foundation invests in the education and development of individuals with entrepreneurial potential within Southern Africa. We share the belief of our founder, Allan W B Gray, that it takes only a few high-impact entrepreneurs to make a difference in South Africa. We are proud of the Foundation’s significant achievements over the years. Its successes are well articulated in Nontobeko Mabizela’s article.

On that inspiring note, I would like to take this opportunity to thank you for your ongoing trust, and wish you all the best for 2024.

Kind regards

Mahesh Cooper

Select a site

The financial services, products or investments referred to on this website are not available to persons resident in jurisdictions where their availability or distribution would contravene local laws or regulations and the information on this website is not intended for use by these persons. This website is for information only and does not in any way constitute a solicitation or offer by Allan Gray Proprietary Limited or any of its associates or subsidiaries (collectively “Allan Gray”) to buy or sell any financial instruments or to provide any investment advice or service.

By selecting one of the countries below I confirm that I have read and understood the above and that:

(a) I am not a South African citizen; or 
(b) I do not reside in the Republic of South Africa; or 
(c) I am not otherwise a person to whom the communication of the information contained in this website is prohibited by the laws of my home jurisdiction; and 
(d) I am not acting for the benefit of any such persons mentioned in (a),(b) and (c) and 
(e) I confirm that any investment with Allan Gray is based on my own initiative and not due to any offer or solicitation by Allan Gray.