Rob Dower
Quarterly Commentary

2010 Q1 Comments from the Chief Operating Officer

In a recent GrayIssue, our monthly electronic newsletter, we noted that a significant portion of the Allan Gray Equity Fund's outperformance came from protecting investors' capital during downturns in the market. Since the Equity Fund's inception (as at end 2009), the market has experienced 31 'up quarters' and 14 'down quarters'. During the up quarters, the Fund beat its benchmark just less than half the time, while it outperformed the benchmark in all 14 of the down quarters. Our investment philosophy and process put a lot of emphasis on preserving capital.

Against this background, we feature in this issue the case for two shares which have attracted our analysts' attention. Andrew Lapping explains why Sasol is our preferred resource share. He points out that the oil price in rands is the most important driver of Sasol's earnings and argues that there are good reasons for this to increase. If the oil price remains close to or exceeds R600 per barrel, which is where things are as I write this, Sasol is trading at about 10 times earnings: an attractive multiple for a business like Sasol, more so in the current market. This is followed by Ruan Stander's contribution on Sanlam, where he makes sense of a very complicated business with a few critical points on performance. Ruan notes that the 'back to basics' strategy of Sanlam group chief executive Johan van Zyl is bearing fruit.

We do not often launch new unit trust funds, so the recently completed first quarter of 2010 was notable for the introduction of the Allan Gray-Orbis Global Optimal Fund of Funds. It brought our total number of unit trusts to nine and filled the 'offshore low-risk' space in our risk-profiled range of such trusts. We have been aware since the launch of the Allan Gray-Orbis Global Fund of Funds in 2004 and the Global Equity Feeder Fund a year later that we did not have a rand-denominated offshore fund that caters for investors who wish to invest offshore and do not want to have a significant exposure to equities. The persistent strength of the rand and the uncertainty in global equity markets have made the investment case for a low-risk offshore fund even stronger. Our Global Optimal Fund of Funds now meets that need.

In a further article, Jeanette Marais looks at the role of independent financial advisers in helping you to become a better long-term investor. We previously examined the role of Allan Gray and your role as an investor in improving your investment outcome. In this piece, Jeanette analyses how the best independent financial advisers have the ability and experience to help investors make choices that suit their circumstances and help them stay the course.

In the next few months we will be saying goodbye to Johan de Lange, who is leaving Allan Gray to join our Chairman, Simon Marais, at the Orbis Australia office in Sydney after nine years heading up our retail division. Under Johan's principled leadership the division has flourished, now serving more than a hundred thousand clients with a simple and sensible range of products.

Continuity in leadership is a key theme for us and the reigns of the retail business will remain firmly in the hands of Rob Formby, Jeanette Marais and Richard Carter (all of whom have contributed and are profiled in this QC). I have great confidence that they will continue Johan's legacy in leading the retail business in a way that puts our clients' needs first.

I do hope you will find these and other contributions in this first Quarterly Commentary issue of 2010 both stimulating and useful.

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