For several years now MB has warned fund manager Allan Gray that it is headed the wrong way, from Domainfax:
There aren’t many investment firms that have had as tough a time in recent years as Allan Gray.
The well known and respected funds manager, self described as a “contrarian” and “deep value” investment house, has found itself more or less at the bottom of the heap while its style has endured a long and arduous period of being out of favour.
Chief investment officer Simon Mawhinney admits underperformance is difficult and “does feel awkward”.
…For the 12 months to the end of January Allan Gray’s Australian equities fund returned negative 11.2 per cent, a 5.4 per cent underperformance of the benchmark. Over three and five years the fund has been beaten by the benchmark by almost 1 per cent for each respective period.
But Mawhinney is adamant the turning point for the firm’s strategy to come back into favour is close.
He has bet on the bottoming of the resources cycle through aluminum, gold and oil but has steered clear of iron ore exposure.
“If the thesis doesn’t change as it falls 30 per cent, then it’s a 30 per cent discount. Unless the future prospects of the company have diminished then you’re crazy not to buy,” he says.
The strategy is wrong and future prospects are collapsing. Allan Gray has been buying the wrong end of the cost curve – Arrium in iron ore and Origin in LNG – amid the greatest commodities bust in history. You only buy the leveraged and marginal cost producers on the way up. On the way down they are primary casualties of the cycle.
Get out now.
