Nedgroup Investments Rainmaker Fund Update

This has comprised on the one side defensive, highly cash generative businesses that we have felt would be able to grow their profits and dividends in an environment of weak global and domestic economic conditions. These positions have generally performed very well and enhanced the fund’s returns and some of the larger positions include British American Tobacco, SAB Miller, Old Mutual, Richemont, Naspers and Trencor.

The other side of the barbell strategy has comprised exposure to more cyclical businesses where we have felt that despite concerns regarding the short term prospects for some of these companies that this was more than fully discounted in their share prices and that a position was justified on a medium to long term outlook. Some of the larger positions in this category have included Anglo Platinum, Anglo American and Steinhoff. These have generally detracted from the funds relative performance. Unfortunately the medium term prospects for some of these companies have deteriorated over the course of the past few months. We have acted on this and have consequently reduced the cyclical side of the barbell strategy.

The proceeds of the disposals that were made have been applied to boosting some of the existing defensive positions which include British American Tobacco, Vodacom and AVI as well as acquiring positions in a few select domestic consumer oriented businesses that have been under-performers and are now more reasonably priced, and which we believe will continue to prosper despite the deteriorating outlook for broader consumer expenditure in SA.

While this action is warranted in the context of our on-going monitoring of the prospects facing all the companies in our coverage universe, we would like to stress that domestic and global conditions can and are currently swinging very wildly in short periods of time. Our more recent decisions taken in the context of the above mentioned companies can change again and we will as always endeavour to use our flexible approach to anticipate these changes and react appropriately.

Rainmaker has historically been positioned with a bias towards companies that will on balance benefit from a weaker Rand. This remains the case today, although we never invest purely on the hope that the currency will depreciate to support a company’s investment case. Today we hold multiple classes of Rand Hedges: including foreign listed non-mining shares (e.g. BAT and Richemont) which are cumulatively 27% of the fund; SA companies with substantial foreign components to their earnings (e.g. Naspers, Mediclinic and Mondi) which are cumulatively 15% of the fund; domestic resource shares (e.g. Anglogold and Sasol) cumulatively 9% of the fund and lastly, local exporters (e.g. Oceana Fishing) cumulatively 3% of the fund. Cumulatively, more than 50% of the fund is allocated to shares that benefit from a weakening Rand.

Finally – the sales we have effected have also increased the overall cash position which when added to a variety of near cash assets already held in the fund (e.g. Alexander Forbes Preference Shares) results in the current cash weighting approximating 8% of the fund. With the market touching a record high in May, we are comfortable to run with a slightly higher cash level until we see value emerging in the market again.

In conclusion we assure all investors of our awareness of Rainmaker’s short term position in the performance ranking tables against the peer group of funds and absolute determination to ensure this improves substantially.

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The Allan Gray-Orbis Global Equity Feeder Fund remains fully invested in global equities. The objective of the Fund is to outperform the FTSE World Index at no greater-than average risk of loss in its sector.