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The current volatile conditions in local and international stock markets have many investors feeling confused and wondering where to turn. And the situation is exacerbated by the fact that, as at the end of July this year, they could choose from a staggering 899 local unit trusts, and 383 foreign funds registered with the Financial Services Board.* This compares to a total of only 415 companies listed on the main board of JSE.
Some of the larger asset managers each offer from 30 to 60 funds, and more, for investors to choose from. Allan Gray has 8 funds.
According to Jeanette Marais, Deputy Director of Distribution and Client Services at Allan Gray, the firm took a decision when it entered the unit trust market in 1998 to only offer a simple suite of funds that are easy to understand and unlikely to change over time. Ten years later it has stuck to that decision.
The funds are intended to be easy to understand, with names that clearly reflect their investment mandates. The Allan Gray Equity Fund, for example, invests in South African equities, the Allan Gray Balanced Fund invests in a ‘balanced’ portfolio of assets in accordance with the prudential investment guidelines set out by the Pension Funds Act and the Allan Gray Bond Fund invests in a combination of government and corporate bonds, and cash. The Allan Gray Money Market Fund is likewise self-explanatory.
“One of the benefits of unit trusts is their comparative simplicity as an investment vehicle. Most investors find them easy to understand, easy to track from a performance perspective and easy to invest in and disinvest. Offering a complicated range of highly specialised funds defeats the aim of simplicity, and often defeats investors,” says Marais.
That the firm only offers one equity fund is testament to the fact that it won’t follow trends. When technology companies were in fashion in the late 1990’s, many asset managers launched technology funds to take advantage of this positive sentiment. Allan Gray didn’t, in part because it did not believe that technology stocks offered value at the time, but more importantly because it did not believe that this sort of fund would offer long-term value to investors.
“Unfortunately, because investor sentiment tends to lag the market, many sector or theme funds are launched at the top of the market, just when the returns from that sector or theme have peaked and are about to decline. Because such funds are launched to give the salespeople something to sell, investors are encouraged to behave inappropriately and they not only lose out on the recent performance of that sector, they also stand to lose money going forward.”
Marais says having a single equity fund helps Allan Gray remain focused, and ensures that it gets the investment team’s undivided attention. “We put all our best ideas into one fund,” he says.
Finally, the bedrock of Allan Gray’s approach to investing is always to take a long-term view, and investors should do the same, Marais says. "Investors should avoid over-reacting to short term market volatility."
This long-term approach means that the firm won’t launch new products simply to follow market trends. “We don’t believe in creating investment products that, in our opinion, hold little promise of long-term wealth creation,” Marais concludes.
*Source: Association for Savings and Investment South Africa (ASISA) |
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