For long-term consistency, Allan Gray is still tops
Some Allan Gray investors may have been unnerved by the manager’s short-term under-performance in the quarter to the end of December and its large exposure to Japan during the earthquake and tsunami there, but the manager has maintained its long-term track record, again coming in at the top of the unit trust management company rankings based on its performance to the end of March this year.
The PlexCrown Ratings emphasise long-term, consistent performance across all a company’s funds, and Allan Gray is still the leader in this respect.
The leaders are determined from the average ratings the management companies obtain in various unit trust sectors based on the PlexCrown ratings of all their qualifying funds in those sectors.
Allan Gray obtained the highest average score of 4.750 (out of the maximum of five PlexCrowns), based on the performance of its six qualifying funds over periods up to five years ending March 31.
The PlexCrown ratings measure a fund’s performance on four or five risk-adjusted measures over periods up to five years. These are combined into a single score, with the emphasis on longer-term performance.
Allan Gray has been the top unit trust fund manager for every quarter bar one since the first quarter of 2008, when it first qualified for a ranking.
PlexCrown Ratings director Ryk de Klerk says Allan Gray has continued to excel in all the categories in which it competes, on both the domestic and foreign fronts.
The Allan Gray Equity Fund and the Allan Gray Bond Fund each achieved the highest rating of five PlexCrowns. This gave the company a joint first position in both the domestic equity and domestic fixed-interest sectors.
Allan Gray’s two asset allocation funds – the Balanced Fund (prudential variable equity) and the Stable Fund (prudential low equity) – each obtained the second-highest rating of four PlexCrowns. The average of these two funds’ scores gave Allan Gray a joint fifth position in the rankings of managers of domestic asset allocation funds.
Allan Gray’s two foreign funds – the Allan Gray Orbis Global Equity Feeder Fund (foreign general equity) and the Allan Gray-Orbis Global Fund of Funds (foreign asset allocation flexible sector) – each achieved five PlexCrowns.
Chris du Toit, an actuary with Allan Gray, says despite the company’s relatively high exposure to Japanese markets, the events there did not have a big impact on Allan Gray’s funds.
He says that from the earthquake on March 11 to the end of the quarter, the Japanese market as measured by the Tokyo Stock Price index (Topix) was down five percent. The Stable Fund had a 10-percent exposure to Japan, which translated into roughly a 0.45-percent drag on the performance of the fund.
The Balanced Fund had a lower exposure to Japan of six percent, while the foreign general equity fund had a 20-percent exposure, resulting in a one-percent drag on performance. The foreign flexible fund had a 28-percent exposure to Japan, with a 1.4-percent drag on performance.
Du Toit says Allan Gray has analysed the impact of the events in Japan on all the companies in which it is invested and has not made many changes to its portfolio.
While some companies may have been affected in some ways by the earthquake, they may also be benefiting from subsequent events. For example, he says, 37 out of 800 stores owned by a pharmaceutical company called Sundrug were affected by the quake and the tsunami, but the company expects to benefit from an increased need for medication and supplies.
Allan Gray has three funds that are not considered when its overall PlexCrown ranking is determined. One is a money market fund, one is a targeted absolute and real return fund, and the third is a new foreign asset allocation flexible fund that does not yet have a long enough track record to qualify for a PlexCrown rating. Money market funds are not rated by PlexCrown Ratings because the variation of returns is too small, and absolute return funds are not rated because the mandates of these funds are so diverse that their returns cannot be compared.
Allan Gray is a manager that invests on the basis of the valuations of shares, bonds or listed property. It seeks securities that are priced below what it regards as fair value.
Prudential Portfolio Managers and Nedgroup Investments have been runners-up in the top three management company rankings for many quarters over the past four years. This quarter, Prudential beat Nedgroup to finish in second position. (It was in third position behind Nedgroup at the end of last quarter).
Prudential achieved an overall average rating of 3.917 PlexCrowns.
It took third position overall in the rankings of managers for the management of domestic funds. The investment house excelled in domestic real estate, where it was joint first; domestic equity, where it came third; and in domestic asset allocation, where it was joint fifth.
The Prudential Enhanced SA Property Tracker Fund and the Prudential Equity Fund each obtained five PlexCrowns. The Prudential Dividend Maximiser Fund, a domestic equity value fund, and the Prudential Balanced Fund in the asset allocation prudential variable equity sub-category each obtained five PlexCrowns.
However, an average rating in the domestic fixed-interest sector (three PlexCrowns for the Prudential High Yield Bond Fund) diluted the company’s overall domestic rating, De Klerk says.
Prudential was runner-up in the average ratings for foreign funds. The house shared second place in both the foreign equity and foreign fixed-interest sub-categories.
Prudential’s Global High Yield Bond Fund of Funds and its global equity fund, the Prudential Global Value Fund of Funds, each obtained four PlexCrowns.
Like Allan Gray, Prudential focuses on the valuations of the securities in which it invests. Prudential calls itself a prudent value manager because it holds what it regards as a prudent exposure to undervalued securities.
Nedgroup Investments moved down from second place last quarter to third place overall with an average rating of 3.656 PlexCrowns.
This position was secured by a very strong showing on the domestic front, where it was runner-up to Allan Gray, De Klerk says.
Nedgroup shared the top spot in the domestic fixed-interest sector with Allan Gray and was supported by a strong showing in the domestic equity sector despite some dilution of its performance due to the loss of the rating on its Growth Fund.
The Growth Fund, which achieved five PlexCrowns last quarter, lost its rating in the growth sub-category this quarter and was given a new lower rating (three PlexCrowns) in the domestic equity general sub-category. PlexCrown Ratings decided to move the growth funds into the general equity sector after a merger of funds resulted in there being too few funds in the sub-category for it to qualify for inclusion in the PlexCrown Ratings and in anticipation of their being moved into this sub-category by the Association of Savings & Investments SA.
The Nedgroup Investments Bond Fund achieved five PlexCrowns and in the domestic equity sector the Nedgroup Investments Value Fund also scored five PlexCrowns.
Nedgroup’s other equity funds – the Rainmaker Fund, the Mining & Resource Fund, the Quants Core Equity Fund, the Entrepreneur Fund, and the Financials Fund – each obtained four PlexCrowns.
The Equity Fund obtained only three PlexCrowns. Nedgroup’s asset allocation funds – the Managed Fund and the Balanced Fund – obtained four PlexCrowns and two PlexCrowns respectively.
The investment house’s overall rating was watered down by a below-average foreign rating due to a weak foreign equity rating, De Klerk says. Nedgroup’s worldwide fund, the Bravata Worldwide Flexible Fund, obtained four PlexCrowns, but its foreign asset allocation fund, the Global Balanced Feeder Fund, obtained a middle-of-the range three PlexCrowns, while its global equity fund, the Global Equity Feeder Fund, scored only two PlexCrowns.
Nedgroup Investments outsources the management of its funds to independent managers that it regards as the best of breed. Many of these are value managers.
The table of average ratings and rankings for the domestic managers (see left) shows an average rating and ranking for each manager based on the risk-adjusted performance of their domestic funds that invest in local markets and another for their rand-denominated funds that invest in foreign markets. The overall rating weights the average domestic rating at 75 percent and the foreign rating at 25 percent.
The top three managers are also the top three managers in the rankings on domestic funds. But on the foreign ratings, Old Mutual is in third place and Nedgroup is placed only 10th out of 14 managers.
Offshore manager performance
Investec is again the leading offshore manager among those with
offshore funds that are registered with the Financial Services Board and can be marketed to South Africans.
Investec beat the other locally registered managers of funds domiciled in a country other than South Africa and denominated in a foreign currency with an overall offshore rating of 4.267 PlexCrowns. Investec was also the leader of the offshore managers last quarter.
PlexCrown Ratings director Ryk de Klerk says Investec took the honours in both the fixed interest and the global asset allocation sector and achieved a commendable fourth position in the overall equity sector.
The manager shone in the regional equity sectors: it was the top performing manager in the US equity category and joint leader in Far East equity and European equity, and was runner-up in the United Kingdom equity sector.
There was a bit of a shake-up in second and third positions. Franklin Templeton Investments moved into second position, pushing Allan Gray’s offshore partner, Orbis, into third position. Orbis, in turn, displaced Ashburton from third place at the end of last quarter to fourth place this quarter.
Franklin Templeton obtained an overall offshore rating of 3.517 PlexCrowns. De Klerk says the company’s overall rating was underscored by a joint first position in the Far East equity sector, second place in the global asset allocation sector, second place in the US equity sector and a joint third place in the European equity sector.
Orbis’s overall offshore rating of 3.333 PlexCrowns was underscored by its strengths in the Japan equity sector, where the investment house shared the honours with Ashburton, and in the global equity general sector, where it shared the second spot, De Klerk says.