Allan Gray Proprietary Limited is an authorised financial services provider. © Allan Gray 2015

BCI Conference

Seema Dala

20 May 2015

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Japan government 10-year bond yield

Source: Igraph, Ian's area IWM

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Maybe Japan is not so unusual?

Source: Igraph, Ian's area IWM

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Risk vs Return: The Theory

Risk

Retu

rn

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Risk vs Return: The Theory

Risk

Retu

rn

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Risk vs Return: The Practice E

xp

ecte

d

Re

turn

Perceived Risk Source: The Most Important Thing, Howard Marks, 2011 (modified)

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Standard and Poor’s 500 index inflation - Adjusted

Source: Ned Davis Research (RH 110515)

(DAVIS113A)

Monthly Data 12/31/1880 - 3/31/2015 (Log Scale)

S&P 500 Index (Inflation Adjusted)

Gain/Annum When:

S&P 500 to P/E Gain/ %

in Bottom Clip is: Annum of Time

* Above 16 0. 7 50. 3

Between 13.5 and 16 1. 2 15. 7

Below 13.5 4. 3 34. 0

Source: (c)International Center for Finance at Yale School of Management Data Source: Robert J.Shiller, Irrational Exuberance 68

83

101

123

150

183

223

271

330

401

488

593

721

877

1067

1297

1578

1918

68

83

101

123

150

183

223

271

330

401

488

593

721

877

1067

1297

1578

1918

Me

an

+1

SD

+

2 S

D

+3

SD

+

4 S

D

-1 S

D

Da

sh

ed

Lin

es =

Std

De

v

(c)International Center for Finance at Yale School of Management Data Source: Robert Shiller,Irrational Exuberance4

6

8

10

12

14

16

18

20

22

24

26

28

30

32

34

36

38

40

42

44

4

6

8

10

12

14

16

18

20

22

24

26

28

30

32

34

36

38

40

42

44

Standard and Poor's 500 Index Inflation-Adjusted

S&P 500 Index / 10-Year Avg EPS Inflation-Adjusted

1890 1900 1910 1920 1930 1940 1950 1960 1970 1980 1990 2000 2010

Copyright 2015 Ned Davis Research, Inc. Further distribution prohibited without prior permission. All Rights Reserved.

. www.ndr.com/vendorinfo/ . For data vendor disclaimers refer to www.ndr.com/copyright.htmlSee NDR Disclaimer at

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Does a 0.1% bond yield mean we should pay P/E 1000 for stocks?

Source: Minack Advisors

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31 March 2015

(8%)

(4%)

0%

4%

8%

12%

16%

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Degree of trending in the FTSE World Index

TMT bubble

This chart shows the degree of “trending” in the FTSE World Index. At each point in time, we rank the stocks in the index on their performance in both the trailing 12-

month period and the 12-month period before that. We then calculated a statistical measure of correlation (Spearman’s Rank Correlation) between those two ranks at

each point in time. Because the data is highly volatile in the short term, we smoothed the results using a four-year rolling average to reflect the degree of trending over

the medium term.

The challenging environment of the past five years

Source: Orbis

Degree of trending in the global stockmarket

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31 March 2015

(40%)

(30%)

(20%)

(10%)

0%

10%

20%

30%

40%

0.25

0.30

0.35

0.40

0.45

0.50

0.55

0.60

0.65

0.70

0.75

90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15

Three-year subsequent relative return (RHS)

Relative attractiveness (LHS)

More

attra

ctiv

e H

igher su

bseq

uen

t relative retu

rn

Japan bubble

TMT bubble

Global laggards look unusually attractive

Relative attractiveness and three-year subsequent relative return of laggards in global markets

Source: Orbis

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0.2

0.4

0.6

0.8

1.0

1.2

1.4

1974 1979 1984 1989 1994 1999 2004 2009 2014

S&P500

Energy Sector

31 December 2014

Ratio of invested capital to enterprise value for Energy shares and the S&P 500, equal-weighted, 1974 through 2014

We are no better positioned to predict the yearly swings in the price of oil today than we were heading into 2014, but our assessment of the industry’s long-term

fundamentals and the intrinsic value of the Fund’s holdings had not changed meaningfully at 31 December 2014. What has changed is the price at which the market is

valuing these energy shares, and we have taken the opportunity to add to some existing positions at wider discounts to our assessment of intrinsic value. In addition,

we are finding good reason to research a number of new opportunities in the sector. As shown in the chart, US Energy shares look more attractive today on a headline

valuation basis versus the wider US market than they have for quite some time.

This analysis was taken from the Orbis quarterly investment commentaries. More details can be found in the 31 December 2014 Quarterly Reports for the Orbis Equity

Funds.

Ra

tio

of

inve

ste

d c

ap

ita

l to

en

terp

ris

e v

alu

e

Less e

xp

en

siv

e

Source: Datastream and

Orbis.

Energy Share Valuations Have Diverged From Those of the US

Market

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Taiwan

ChinaMalaysia

Philippines

Singapore

India

Indonesia

Korea

Thailand

Asia ex-Japan

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

7.5 10.0 12.5 15.0 17.5 20.0 22.5

Payout ratio indicated by

diameter of circle

20% =

31 December 2014

Price-to-book value, price to earnings, and payout ratios of Asia ex-Japan markets, as at 31 December 2014

As shown above, Korea remained the cheapest stockmarket in Asia on a price-to-book basis at the end of 2014, but the bear view is that it is deservedly so. With low

earnings growth, low dividend payouts and poor corporate governance plaguing many companies, many investors would argue that Korean shares are a classic value trap

rather than an undervalued opportunity. We do not take a contrarian view on Korea just for the sake of it; nor do we invest in “Korea” as a whole. Instead, as a result of our

bottom-up research, we found ourselves excited about a number of Korean shares at the end of 2014.

This analysis was taken from the Orbis quarterly investment commentaries. More details can be found in the 31 December 2014 Quarterly Reports for the Orbis Equity

Funds.

Pri

ce-t

o-b

oo

k v

alu

e

Price to earnings

Source: Datastream and

Orbis.

Korea is Cheaper Than Other Asia ex-Japan Markets, With Lower

Shareholder Payouts

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Our most important actions are our portfolio decisions 31 March 2014

China 5.8%

NetEase

Korea 4.9% Samsung

Electronics

2.3% KB Financial

Group

Russia 2.1%

Gazprom

United States 5.3% Motorola

Solutions

3.7% QUALCOMM

3.4% eBay

3.1% Apache

2.6% Microsoft

2.1% Liberty Global

Key overweight markets

Key underweight markets Normalise

d

P/E

Trailing

P/E

Current /

historical

P/E

Current /

historical

margins

Historical

revenue

growth

Orbis Global

Equity Fund 16x 18x 1.2 0.9 7%

FTSE World

Index 24x 20x 1.3 1.1 4%

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Legal notes

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source.

The information provided is not intended nor does it constitute financial, tax, legal, investment, or other advice. Before

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shall merely be deemed to be an invitation to do business.

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and correct. However, Allan Gray shall not be responsible for and therefore disclaims any liability for any loss, liability,

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