Rob Formby
Quarterly Commentary

2019 Q4 Comments from the Chief Operating Officer

This issue of our Quarterly Commentary is dedicated to our founder, Allan William Buchanan Gray, who sadly passed away in November. He lived a life of purpose, and the impact he had on so many lives was eloquently captured by the many who have paid tribute to him. A great number of these messages came from Allan Gray Fellows, who have been the beneficiaries of scholarships and entrepreneurial mentorship from the Allan Gray Orbis Foundation. These young people described Allan as a selfless visionary, a remarkable leader who restored purpose and hope, a person whose incredible generosity changed the lives of generations. Their sentiments were echoed in the tributes that poured in from family, friends, colleagues and industry peers across the globe. 

Allan’s most enduring legacy for clients may be the steps he took to ensure that the company would remain in excellent hands for many generations to come. A meticulous planner, he spent years gradually transferring his responsibilities to others. He handed over the presidency of Orbis to his son William in 2000, resigned from the Allan Gray board in 2010 and stepped away from his remaining investment responsibilities at Orbis in 2012. Before retiring from Orbis in 2016, Allan established the Allan & Gill Gray Foundation, endowed with his family’s controlling stake in the Orbis and Allan Gray groups.

Thanks to the structure that Allan put in place … clients can be certain that we will remain true to our philosophy

Allan knew that an investment firm’s ownership structure is critical to its ability to act in the best interests of clients. The greatest investment opportunities tend to arise at moments of maximum pressure, when clients, the investment team, and even the owners of the firm are all under extreme stress. In particular, having an ownership structure that is supportive during periods of prolonged underperformance ensures that managers don’t capitulate at the bottom of the cycle. Thanks to the structure that Allan put in place and his efforts to develop successive generations of disciplined investment decision-makers, clients can be certain that we will remain true to our philosophy.

This issue contains a fitting tribute to Allan by Jonathan Brodie, who was an early employee of Allan Gray and enjoyed a personal as well as professional relationship with him. We have also included a collection of insights and lessons that have resonated most with those who worked closely with Allan over the years. 

Yogavelli Nambiar, from the Allan Gray Orbis Foundation, discusses how Allan’s spirit – one of empowerment, of humanity, of servant leadership – is evident in those who have received the benefits of his endeavours. And most poignantly, in the Orbis update, William Gray talks about his father’s unwavering disciplined and focused approach, which forms the basis of our investment philosophy. 

Allan made a difference and will be missed. 

Investing in the current climate

2019 was a difficult year, with global political tensions weighing on the growth of major economies, and local economic growth expected to have been only 0.5%. Adding to this, Fitch, Moody’s and Standard & Poor’s have a negative outlook on South Africa.

as negative sentiment seems to be weighing more heavily on equities than fixed interest, investors are chasing less volatile returns

As we start the year, investors are naturally feeling a bit nervous as a result and are increasingly turning their backs on stock markets in favour of safer haven assets. But is this sensible? We have often commented that GDP growth and stock market returns are not correlated, but as negative sentiment seems to be weighing more heavily on equities than fixed interest, investors are chasing less volatile returns. Beatri Faul looks at this trend in her article, which tackles what behavioural economists term “recency bias”, while Londa Nxumalo discusses bonds and where they should fit into your overall portfolio. 

These authors’ thoughts should be considered in the context of Sandy McGregor’s piece on inflation. Sandy aptly notes that perhaps the best way to escape the tyranny of the prevailing consensus is to study economic history, from which one can gain insights into how we got to where we are now. This can equip us to make better informed decisions today. 

Make the most of your tax benefits

There are certain annual tax benefits available for you through your retirement fund and tax-free investment account. You forfeit these if you don’t act each year. As we approach the end of the tax year (the end of February), it is worthwhile relooking your finances. If you have cash to spare, consider taking full advantage of the tax incentives. Carla Rossouw discusses the available options in this quarter’s Investing Tutorial

As we begin the new decade, I would like to take this opportunity to wish you all the best for 2020 and to thank you for your continued trust and commitment. We don’t take it lightly.

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