It is hard to believe that the first unit trust was launched in South Africa over 60 years ago. The industry has grown to serve over R4tn in clients’ savings, investments and retirement provisions. The simplicity of the unit trust vehicle is often underappreciated: You invest your money alongside that of thousands of other investors, and together you own a diversified portfolio of assets managed by experienced professionals. Unit trusts democratised investing.
Even in today’s technological world, building a portfolio and managing it yourself is complicated: You would need to buy shares in an array of local and international companies, add government and company interest-bearing instruments, maybe some property, and keep some cash to meet your liquidity needs. Plus, you would need to research and monitor these assets on an ongoing basis, rebalance your portfolio as markets move, and make difficult decisions when emotions inevitably get involved.
A well-managed unit trust does all that for you. Regardless of how much you contribute to a particular unit trust, your investment benefits from the same investment process, research and professional oversight as that of all the other investors. There is a wide range of local and global unit trusts available in South Africa, allowing you to execute your investment strategy to achieve your long-term financial objectives.
Looking under the bonnet
It is valuable to take the time to understand how we invest and why we make the decisions we do. Understanding the thinking behind the shares we own can make it easier to stay the course when markets become turbulent.
Our investment philosophy, which we share with our offshore partner, Orbis, is valuation-driven: We invest based on what we believe a business is truly worth, seeking opportunities where the market price differs meaningfully from our estimate of intrinsic value. We often invest differently from the crowd because we are focused on what a business could be worth over time, not what the market thinks today.
We aim to provide insights into our approach in our Quarterly Commentary, and you can access more regular articles on the “Latest insights” page and by listening to The Allan Gray Podcast via your favourite podcasting platform.
It is valuable to take the time to understand how we invest and why we make the decisions we do.
In this quarter’s Quarterly Commentary, we look under the bonnet of some of our unit trusts to share examples of how our philosophy and approach translate into action. In his piece, Duncan Artus, our chief investment officer, reminds clients that as a unit trust investor, you are a part-owner of listed companies, many of which you interact with frequently and whose brands you use or consume daily. Duncan shares some examples that may give you pause for thought next time you shop at Woolies or reach for your Nintendo Switch 2.
We apply the same investment philosophy across other asset classes, such as bonds, property and commodities, and our approach is consistent across our unit trusts, including the Allan Gray Balanced Fund. While we are under the bonnet this issue, we look at some of these asset classes.
Developed market bonds and precious metals
While it is relatively easy to understand that owning shares means owning part of a business, bonds are more complex. Bond investors earn interest by providing a loan to a government, municipality or company for a set period. If investors become less confident that a borrower will repay its debt, they will demand a higher return (yield) to compensate for the extra risk, causing bond prices to fall. Developed market bonds currently fall into this category, trading at price lows last seen 15 to 20 years ago. Thalia Petousis investigates how governments have reached this point and discusses why investors should approach with caution – a view shared by Mark Dunley-Owen from Orbis.
Mark’s piece touches on developed market bonds and other assets held by the Orbis Global Cautious Fund. The Orbis Global Cautious Fund was launched to South African investors in 2024 as an option for more risk-averse investors seeking a low-equity, globally diversified, multi-asset class fund. It has outperformed its benchmark and peers over recent years – despite market volatility. With investors questioning whether Orbis has been taking on more risk in this fund to achieve these results, Mark explains how Orbis balances risk and return.
Balancing risk and return is a theme that surfaces in most of the articles this quarter. Jeff Tshikhudo considers the recent price moves in precious metal shares as he explores how the risk of loss increases when investors are lured by high prices and fuelled by the fear of missing out.
Maximising your investments
As mentioned earlier, your likelihood of investment success is increased if you understand how your manager invests. This will help you remain invested long enough to benefit from their expertise. However, this is often easier said than done. In this quarter’s Investing Tutorial, Mthobisi Mthimkhulu helps us understand what it means to navigate uncertainty when the temptation to react is real.
While many of the insights shared are grounded in the accumulation phase of investing, the habits, structures and decisions formed during this phase ultimately shape both the choices available at retirement and the sustainability of income thereafter. In his capacity as a trustee of the Allan Gray retirement funds, Richard Carter looks at the options available to retirement fund members when they retire and need to draw an income.
Paying tribute to Claire Solomon
I am devastated to share that our head of Finance, Claire Solomon, very sadly passed away on 5 July. Claire joined Allan Gray in 2002. She was a dedicated, trusted colleague and friend, a respected leader, and someone who was always willing to help others. She touched the lives of many – including by mentoring many individuals who play a key role at Allan Gray today. She always displayed resilience, courage, and grace. Her absence will be deeply felt. Our thoughts and heartfelt condolences are with Claire’s family and loved ones.