The Allan Gray Balanced Fund is a well-established unit trust that aims to create long-term wealth for investors by maintaining a balanced portfolio. As of 2024, the fund continues to stand out in the market due to its strategic investment approach and strong performance over the years. This article provides a detailed review of the fund, its objectives, strategy, performance, and suitability for different investors.
Fund Overview
The Allan Gray Balanced Fund is designed for investors seeking steady long-term capital growth with a moderate risk tolerance. It invests across a diversified range of asset classes, including equities, bonds, property, commodities, and cash. The fund is managed with the intention of complying with the investment limits governing retirement funds, making it a popular choice for those looking to secure their financial future.
Key Fund Details (as of June 2024):
- Fund Size: R188.8 billion
- Number of Units: 576,098,247
- Price per Unit: R150.77
- Inception Date: 1 October 1999
- Fund Managers: Duncan Artus, Rory Kutisker-Jacobson, Tim Acker
- Offshore Investments: Managed by Orbis Investment Management Limited
Investment Strategy
The Allan Gray Balanced Fund employs a disciplined investment strategy that focuses on long-term growth. The fund managers aim to purchase shares at a discount to their intrinsic value, based on thorough research and analysis. This approach allows the fund to capitalize on undervalued stocks that may be overlooked by the market due to short-term challenges but offer substantial long-term potential.
The fund’s asset allocation is carefully balanced to optimize returns while managing risk. Here is a breakdown of the fund’s investment strategy:
- Maximum Offshore Investment: Up to 45% of the fund’s assets can be invested offshore. These investments are typically in equities, managed by Orbis Investment Management, Allan Gray’s offshore partner.
- Domestic Investment Focus: The majority of the fund’s assets are invested in South African companies listed on the Johannesburg Stock Exchange (JSE). This includes a mix of shares, bonds, and other instruments.
- Net Equity Exposure: The fund maintains a maximum net equity exposure of 75%. To manage this exposure, the fund may utilize exchange-traded derivative contracts on stock market indices.
- Investment in Other Assets: When the stock market offers limited attractive opportunities, the fund may increase its allocation to alternative assets such as bonds, property, and commodities. The fund’s bond and money market investments are actively managed to enhance returns.
Performance and Returns
The Allan Gray Balanced Fund has consistently delivered strong performance, outperforming many of its peers in the South African Multi-Asset High Equity category. The fund’s objective is to outperform the average return of similar funds without taking on additional risk.
Performance Highlights (as of June 2024):
- Annualized Return Since Inception (1999): 14.8%
- Latest 10 Years: 8.0% per annum
- Latest 5 Years: 10.3% per annum
- Latest 3 Years: 11.4% per annum
- Latest 1 Year: 9.4%
- Year-to-Date: 3.4%
The fund’s performance is benchmarked against the market value-weighted average return of funds in the South African Multi-Asset High Equity category, excluding Allan Gray funds. This benchmark allows investors to assess the fund’s performance relative to its peers.
Risk and Volatility
Investing in the Allan Gray Balanced Fund comes with a moderate level of risk, which is lower than that of a pure equity fund but higher than that of fixed-income investments. The fund’s risk management strategy includes actively managing equity exposure and diversifying across different asset classes.
Risk Measures (Since Inception):
- Maximum Drawdown: -25.4%
- Percentage of Positive Months: 69.7%
- Annualized Monthly Volatility: 9.4%
- Highest Annual Return: 46.1%
- Lowest Annual Return: -14.2%
These figures indicate that while the fund has experienced periods of decline, it has also delivered significant returns during favorable market conditions. The fund’s volatility is in line with its investment objective of long-term capital growth.
Suitable Investors
The Allan Gray Balanced Fund is suitable for investors who:
- Seek long-term capital growth: The fund is ideal for those with an investment horizon of more than three years.
- Are comfortable with moderate risk: Investors should be prepared for some market fluctuation and potential capital loss, although the risk is generally lower than that of an equity-only fund.
- Wish to invest within retirement fund limits: The fund is managed to comply with the investment limits set for retirement funds, making it a suitable choice for retirement savings.
Getting Started with the Allan Gray Balanced Fund
To invest in the Allan Gray Balanced Fund, investors can choose from a range of accounts offered by Allan Gray. The choice of account will depend on the investor’s financial goals and preferences. Here are some of the available options:
- Basic Unit Trust Investment Account: This account offers flexibility and allows investors to access their money as needed. The minimum investment is R20,000.00, or R500 per month for those who prefer to invest gradually.
- Tax-Free Savings Account: This account allows investors to grow their investments tax-free, with a maximum annual deposit limit of R36,000.00 and a lifetime limit of R500,000.00. The minimum investment is R50,000.00, or R1,000.00 per month.
- Retirement Annuity Account: Ideal for those looking to benefit from tax exclusions on retirement savings. The minimum investment is R50,000.00, or R1,000.00 per month.
- Offshore Investment Account: For investors seeking to diversify across different economies, this account requires a minimum investment of R50,000.00 or $3,500.00 (or equivalent in other major currencies).
- Endowment Account: Suitable for investors with a marginal tax rate higher than 30%, this account offers estate planning benefits and tax efficiency. The minimum investment is R50,000.00 or R1,000.00 per month.
- Preservation Fund Account: Designed for those who wish to preserve and grow their existing retirement savings until they are ready to retire. The minimum investment is R50,000.00.
- Living Annuity: For retirees who need to start drawing an income from their retirement savings, this account requires a minimum investment of R125,000.00.
Understanding the Fees
Investing in the Allan Gray Balanced Fund involves certain fees, which are deducted before calculating performance figures. These fees include:
- Investment Management Fee: 0.95%
- Administration Fee: 0.03%
- VAT: 0.15%
- Total Fees: Approximately 1.13% of the total investment
These fees are essential for the management and administration of the fund and are in line with industry standards.
Conclusion
The Allan Gray Balanced Fund remains a robust option for investors seeking long-term capital growth with moderate risk. Its diversified investment strategy, consistent performance, and adherence to retirement fund limits make it a compelling choice for both new and experienced investors. With a range of account options and a clear fee structure, the fund provides flexibility and transparency, ensuring that investors can align their investments with their financial goals.
