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Transcription of Finance News Network Interview with Allan Gray Australia Equity Fund, Fund Manager Simon MawhinneyLelde Smits: Hello I’m Lelde Smits for the Finance News Network and joining me from the Allan Gray Australia Equity Fund is Fund Manager, Simon Mawhinney. Simon welcome to FNN.
Simon Mawhinney: Thank you for having me.
Lelde Smits: The Fund adopts a contrarian approach to investing. Could you outline how this process works?
Simon Mawhinney: It’s our view that in order to buy shares which are significantly below their fair value, they need to be unloved. Loved shares tend to be overpriced and have appreciated significantly in price, prior to your purchase. And so that’s the reason we focus on the unloved sector of the market and do our fundamental research on that sector, and then invest with the long term horizon in mind.
Lelde Smits: Could you give us a recent example of how this strategy was delivered?
Simon Mawhinney: A recent example would be our investment in the Real Estate Investment Trust or REITs, during and after the financial crisis when they became lepers of the investment community, and had fallen almost 90 per cent from their peaks. And for long term investors, they went on to increase fivefold from there. More recently and though it’s not played out yet, perhaps the gold sector is a classic opportunity for us. They too have fallen 80 or more per cent from their peaks and hopefully in the fullness of time, will do substantially better than the rest of the market from here.
Lelde Smits: What is your investment horizon and what kind of investor is best suited to your approach?
Simon Mawhinney: I think it’s no different to any investor in equity markets. You need to take a reasonably long term horizon, markets are volatile at times. So any investor who’s happy to invest in equity markets is probably suitable to us, but they should all have a five year investment horizon in mind.
Lelde Smits: How has the Fund performed since inception and more recently, which stocks supported your performance and which detracted?
Simon Mawhinney: Since inception we’ve outperformed our benchmark by a little more than two per cent per annum. Recently stocks like Alumina Limited (ASX:AWC) and Transfield Services Limited (ASX:TSE) have been good contributors to our performance, as have some of the media stocks Fairfax Media Limited (ASX:FXJ) and APN News and Media Limited (ASX:APN). And some of the detractors have been Pacific Brands Limited (ASX:PBG) and Southern Cross Media Limited (ASX:SXL).
Lelde Smits: What are some of your larger positions and where have you made recent adjustments?
Simon Mawhinney: Large positions currently are UGL Limited (ASX:UGL), Transfield Services Limited (ASX:TSE), the oil and gas sectors attracted us more recently. So we’ve increased our exposure to Woodside Petroleum Limited (ASX:WPL) and Origin Energy Limited (ASX:ORG). And equally the gold sector has been very depressed and we have started to invest in that, and Newcrest Mining Limited (ASX:NCM).
Lelde Smits: Finally Simon, how is the Fund weighted towards banks and miners?
Simon Mawhinney: We’re very underweight the banks at the moment, with roughly 10 per cent of our portfolio invested in the banks. And the miners, we’re probably equal weight to the miners but very differently mixed, relative to those miners’ weight and our benchmark. And our biggest overweight is everything but those banks and miners, essentially.
Lelde Smits: Simon Mawhinney, thank you for the introduction to Allan Gray Australia Equity Fund.
Simon Mawhinney: Thank you for having me.
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