MTN top pick for Allan Gray
Allan Gray, SA’s largest unit trust manager with more than R153bn riding in its classic equity fund, has been known in the past for taking particularly divergent views from the rest of the market and for liking mining companies.
MTN is in favour with many fund managers, making it less of a unique stock pick.
Although Impala Platinum (Implats) and Harmony are still in Allan Gray’s top 10 stock picks, Harmony has less weighting than before.
However, Allan Gray’s position in the platinum group metals has been increasing, with Implats preferred to Anglo American Platinum because the latter’s costs had not been well contained, said Ian Liddle, a portfolio manager at Allan Gray.
One thing Allan Gray was steering clear of were small cap stocks — the section of the market that has boomed in the past couple of years.
Liddle said from 1997 to 1999 there had been 229 listings on the JSE.
Just more than 200 of the new listings showed negative nominal capital returns in the next four years and 111 of the companies lost more than 80% of their capital.
Allan Gray had worked out that despite a spike in returns at the start of that listings boom, if someone had invested R100 in the average of new 1997 listings, they would have had R40 after four years.
“It’s not IT companies that are listing today, it’s the construction stocks. But the lessons still apply and we’re avoiding small caps,” said Liddle.
This might change if prices became attractive again, he said. Allan Gray has responded to market turmoil this year by reducing share exposure.
Johan de Lange, a director at Allan Gray, said the equity fund had shrunk since March with investors moving aggressively out of stocks. In the same period, the money market fund doubled.
Liddle said he did not expect the levels of outperformance seen in the past four years to repeat themselves towards the end of this year.
Far from SA being the master of its economic destiny, he said, it had just been part of an emerging market phenomenon. In fact, the rand was underperforming against many of its peers this year.
One area of Allan Gray not having a great year so far was Orbis, the local company’s global asset management partner.
Sean Peché, a London based investment analyst at Orbis, said yesterday that in the year to date the Orbis equity fund operating out of Japan was almost 7% down.
Peché attributed Orbis’ lower performance to Orbis having sold exporters too early, having bought financials too early and not buying commodity-related stocks.
He said the company would, though, stick to its investment philosophy and continued to be “very keen” on Japanese equities. The top banking pick was Mitsubishi UFJ.
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