Allan Gray Australia Equity Fund
Asset Class: Australian Equities
Description: Deep Value, All-Cap
- Allan Gray is a long-only Australian equities fund with a deep-value, contrarian strategy that buys into un-loved companies that the rest of the market usually prefers to avoid.
- It is the polar opposite of a "quality" strategy. The investment thesis rests on the assumption that the market tends to over-discount bad news or negative outlooks associated with companies. Provided that these companies don't go bankrupt, Allan Gary believes there is often upside to their share price.
- The classic pitfall of a value strategy is a "value trap", a company that looks very cheap but is actually cheap for a good reason and ultimately goes out of business. Although Allan Gray undertakes deep fundamental analysis of each company, it acknowledges that a small percentage of their investments over time will go bankrupt. Therefore it invests across a high number of stocks (50 to 80) to diversify against this risk.
- The other notable aspect of this strategy is that it may take a long time for the market to recognise that these stocks are under-valued. Therefore this strategy is most appropriate for investors with a long horizon. Historically it has gone through long periods of keeping up with the market or slightly underperforming, followed by periods of strong outperformance.