ESG – WHAT REALLY MATTERS TO YOU? FEBRUARY 2020
OUR PALE BLUE DOT 2
POPULATION GROWTH = DEMAND, COMPETITION 3
WHAT DOES A GIGTONNE OF CARBON LOOK LIKE? X 36 Billion Source: www.advancedsciencenews.com 4
HYPE VERSUS SUBSTANCE Source: Bloomberg, 12 December 2019 5
HOW DO WE MAKE A DIFFERENCE? Source: www.fastcompany.com – article based on a new study from researchers at McMaster University 6
SOCIAL ISSUES The Weinstein Company Faces Serious Challenges "It's going to be much more expensive to raise money for projects, whether it's debt or equity, and it'll be more difficult to attract high level projects for now" Source: Headline from article in www.forbes.com, quote from Hal Vogel, media analyst 7
FUNDS LAUNCHED IN 2019/2020 Socially Conscious? Socially Conscious? 4500 600 4000 500 3500 36 991 3000 400 2500 300 2000 448 1500 200 2957 1000 100 500 0 - Number of funds Asset size ($bn) No Yes No Yes Source: Morningstar 8
ESG SCREENING – AN INDUSTRY VIEW 9
ESG IS IMPORTANT – BUT BE DISCERNING “A pack of lemmings looks like a group of rugged individualists compared with Wall Street when it gets a concept in its teeth .” — Warren Buffett Source – cartoon: Eric Allie 10
EVER EXPANDING PRODUCT LIST, BUT WHO BENEFITS MOST? • Corporate Equality Index • Gender Diversity ETF • Patriotic Employers ETF (Military Veterans Index) • Catholic Values ETF • “Dump Trump” super option 11
VALUES CAN BE HIGHLY SUBJECTIVE Investor A Investor B Investor C Performance in terms of non-financial values 15% p.a. 15% p.a. 15% p.a. Investment return 12
“TWO GOALS, TWO INSTRUMENTS” PERFORMANCE VALUES Quote: “Two goals, two instruments” – quoting Jan Tinbergen. Source: Gray, J. 2012. “Misadventures of an Irresponsible Investor.” Rotman International Journal of Pension Management. 5 (2): 9. 13
OUR CONTROLLING SHAREHOLDER IS A CHARITABLE FOUNDATION Dual purposes Active strategic philanthropy aimed at promoting public benefit or social improvement Allan & Gill Gray Foundation Gray family excluded from economic benefit Promote the commercial success, continuity and independence of the Orbis and Allan Gray groups 100% subsidiary Delegation of oversight and support of Orbis and Allan Gray groups Orbis Allan Gray Limited Controlling interest Allan Gray Allan Gray Orbis South Africa Australia 14
MONITOR MANAGEMENT THROUGHOUT HOLDING PERIOD Share Price Our assessment of the company’s true value We start to sell here Margin of Safety Value We start to buy here Time 15
ALLAN GRAY APPROACH TO ESG • Shareholder’s interests - think like a business owner • Active engagement • Voting • Sustainability of company’s earnings 16
CASE STUDY 1: ROC OIL Source: Allan Gray Australia Quarterly Report June 2014 17
CASE STUDY 1: ROC OIL 18
CASE STUDY 1: ROC OIL 19
CASE STUDY 1: ROC OIL 20
CASE STUDY 2: TASSAL $5.00 $4.50 $4.00 $3.50 $3.00 Price $2.50 $2.00 $1.50 $1.00 $0.50 $0.00 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 Nov-07 Mar-08 Jul-08 Nov-08 Mar-09 Jul-09 Source: Bloomberg 21
CASE STUDY 2: TASSAL 22
CASE STUDY 2: TASSAL – SHARE PRICE AND HOLDINGS 30000 $4.50 $4.00 25000 $3.50 Holdings (shares X 1000) 20000 $3.00 Share price $2.50 15000 $2.00 10000 $1.50 $1.00 5000 $0.50 0 $0.00 2/02/2009 2/02/2010 2/02/2011 2/02/2012 2/02/2013 2/02/2014 2/02/2015 Holdings Price 23
ALLAN GRAY FUNDS Stability and Lower Risk Higher potential long-term return Lower potential return Higher investment risk and fluctuation Allan Gray Australia Allan Gray Australia Allan Gray Australia Stable Fund Balanced Fund Equity Fund 24
ALLAN GRAY AUSTRALIA EQUITY FUND PERFORMANCE Allan Gray Australia Equity Fund S&P/ASX 300 S&P/ASX Small Ordinaries 330 310 290 270 250 230 210 190 170 150 130 110 90 70 50 30 06 07 08 09 10 11 12 13 14 15 16 17 18 19 Source: Allan Gray Australia as at 31 January 2020. Past performance is not indicative of future performance. Performance shown relates to Class A units 25
ALLAN GRAY AUSTRALIA EQUITY FUND PERFORMANCE 28% 25.0% 24% 20% 17.1% 16% 12.4% 11.7% 11.1% 10.7% 12% 9.4% 9.0% 8.6% 6.7% 8% 4% 0% 1 year 3 Years 5 Years 10 Years Since launch Allan Gray Australia Equity S&P/ASX 300 Accumulation Index Source: Allan Gray Australia Equity Fund Class A as at 31 January 2020. Past performance is not indicative of future performance. Performance shown is annualised. 26
SUMMARY • ESG is important, but…. • Be wary of ESG sales pitches • Consider “two goals, two instruments” • Use managers who fight for your clients • Allan Gray – pursuing clients interests is a key principle 27
About this presentation Objective of To provide you with some key high level information about Allan Gray Australia, our investment philosophy and the following Funds: presentation (i) the Allan Gray Australia Equity Fund, (ii) the Allan Gray Australia Balanced Fund, and (iii) the Allan Gray Australia Stable Fund. Please don’t take this presentation as an offer to sell or a recommendation that you should invest in any Fund. Before making an investment decision, please read the relevant Fund’s Product Disclosure Statement and Information Booklet (together PDS). The PDS is available fro m www.allangray.com.au free of charge. Issuer of units Equity Trustees Limited, AFSL No. 240975 Investment manager Allan Gray Australia Pty Ltd, AFSL No. 298487 Fund structure The Funds are managed investment schemes registered with the Australian Securities and Investments Commission. The Funds are also registered for promotion in New Zealand. No personal advice This presentation only provides general information or advice. It does not take into account any investor’s personal financial circumstances, objectives or needs. Please read Allan Gray’s Financial Services Guide if you are interested in the benefits either entity is entitled to receive as an AFS licensee. The FSG is available from our website. Risks There are risks with any investment, including one in the Funds. Please read the risk section of the relevant PDS for more details. Performance Past performance is not a reliable indicator of future performance and the value of any investment in the Funds is not guaranteed. Unless otherwise information indicated, returns information is net of fees and assumes reinvestment of distributions. Economic, market, index Such information is provided to indicate reasons for our investment decisions or represents our views on certain matters and based on certain or stock commentary assumptions and proprietary analysis. It is not intended to be personal financial advice. You should not rely on our commentary to make any investment decision. This is because our views can and do change over time, or may turn out to be incorrect. Other Finally, please seek professional advice, if necessary. We have tried to ensure the information in this presentation is accurate in all material respects but cannot provide any guarantee that it is. 28
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