Portfolio manager Rory Kutisker‑Jacobson unpacks the drivers of the Allan Gray Balanced Fund’s pleasing performance achieved amid a highly turbulent market environment. He reflects on why disciplined asset allocation remains central to navigating an increasingly unsettled investment landscape and how diversification has once again proved its value.
With the US and Israel launching a joint military operation against Iran on 28 February, the first quarter of 2026 was characterised by heightened geopolitical risk, sharp moves in commodity and equity markets, and continued divergence across asset classes. Against this backdrop, the Allan Gray Balanced Fund delivered a pleasing return of 4.1% for the quarter, outperforming its benchmark by 6.4%. Commodity-linked equity exposure and asset allocation decisions played a key role in this relative performance.
Commodity prices and related equity market volatility were key drivers of returns during the quarter, with performance diverging meaningfully across sectors:
- Gold: The precious metal was highly volatile. It started the year at around US$4 300 per ounce, rallied to a record high above US$5 400 per ounce in late January, and then declined sharply in March as rising real yields and a stronger US dollar offset its safe-haven appeal. From peak to quarter end, the price of gold fell approximately 16% to US$4 554 per ounce, ending the quarter slightly above where it JSE-listed gold shares showed similar price movements.
- Platinum: Similar to gold, at the beginning of the year, platinum continued the strength seen in much of 2025, rising from US$2 226 per ounce to over US$2 800 per ounce in late January. It then fell sharply to US$1 908 per ounce, ending the quarter lower than it began.
- Oil: In sharp contrast to the precious metals sector, oil staged a substantial rally in March as the escalation of the US-Israeli war with Iran disrupted This raised concerns around the risks of a prolonged closure of the Strait of Hormuz and the implications for energy markets and related commodities. Having begun the year trading at US$61 per barrel, Brent crude oil ended the quarter at over US$100 per barrel.
Throughout much of last year and the early part of this year, we trimmed our gold and platinum group metals equity exposure into strength. As such, while we build the portfolio from the bottom up and remain benchmark agnostic, our underweight positioning in precious metal equities benefited our domestic equity returns, particularly in March. Similarly, our overweight positions in Glencore, Thungela and Sasol benefited from the rally in oil and energy-related commodity prices. After being out of favour with the market for much of the last decade, Sasol was particularly strong, rallying over 100% during the quarter.
Given the importance of oil to the global economy, disruptions to energy supply have widespread implications for global growth, inflation and interest rates. Financial markets have broadly reacted negatively, with global equities declining and volatility intensifying. Rising inflation and interest rate expectations have also seen bond markets sell off.
For example, the South African 10-year government bond fell sharply, with the yield moving from just over 8% at the start of March to 9.6% at the end of the quarter. This is equivalent to a price decline of roughly 8.8%. Recent volatility masks what has, however, been a favourable market for bond investors in South Africa. Over one year, on the back of improving domestic sentiment, declining inflation and South Africa’s removal from the Financial Action Task Force (FATF) grey list, the FTSE/JSE All Bond Index has returned 19.2%. Thus, despite the March sell-off, owning South African bonds has been a good investment.
A notable divergence has, however, arisen between the performance of domestic bonds and domestically focused “SA Inc.” equities. In contrast to domestic bonds, sentiment towards SA Inc. equities, particularly consumer-facing names, turned negative in 2025. This negativity has carried through into 2026, as constrained household income growth and weak consumer confidence have weighed on sales and earnings growth. Since the start of 2025, the share prices of Mr Price, Truworths, TFG and Spar are all down by over 45%. Even historic market darling Clicks has come under pressure, falling 22% over this period. After being materially underweight these shares for some time, we have been selectively buying them over the past few months, as we believe the share prices are now discounting a rather dire future.
Offshore, the Fund’s meaningful allocation to Orbis funds has continued to drive positive relative performance. In particular, we have benefited from being underweight an expensive US market and holding a basket of idiosyncratic, diversified equities and bonds that look very different to the average manager. The common thread across these assets is their individual attractiveness. Over time, this exposure remains a key driver of long-term returns and risk management.
The first quarter of 2026 highlighted the importance of diversification in an environment marked by geopolitical shocks and commodity volatility. The Fund remains focused on long-term value creation through disciplined asset allocation and security selection. We continue to position the portfolio to withstand a range of outcomes, recognising that periods of uncertainty often present the best opportunities for the patient investor.