Offshore investing
Offshore investing

Q&A: Orbis Global Equity Fund

1. What are the names of the managers of the Orbis Global Equity Fund and where are they based?

William Gray is ultimately accountable for the Global Equity Strategy.  He is based in Bermuda. The underlying key decision makers are Ben Preston, Brett Moshal, Stefan Magnusson, Ed Blain and Adam Karr.  Nick Purser is responsible for currency recommendations.  These decision makers are based in London, San Francisco and Hong Kong.

 2. What is your investment philosophy and process?

Orbis and Allan Gray share the same investment philosophy and process. We focus entirely on finding the most compelling individual opportunities on offer. We do this regardless of what is in fashion or what our peers are doing. We have been investing in this way for more than 40 years, so have a proven track record through different market cycles.

Put simply, we want to buy shares for much less than they are worth. Shares are nothing more than fractional ownership interests in a business. If our analysts can truly understand the fundamentals of a given company, we can determine whether the price the stock market is offering is cheap or expensive relative to the intrinsic value of the business.  Compelling investment opportunities often arise when investors place too much emphasis on short-term developments at the expense of long-term fundamentals. Capitalising on excessive pessimism lies at the heart of our investment philosophy. We believe that share prices must ultimately reflect intrinsic value and we are prepared to wait patiently until our investment thesis plays out. We recognise that even the best stock-pickers tend to be wrong about 40% of the time, so we seek to mitigate permanent losses of our clients’ capital when this occurs.

It is a simple philosophy to grasp, but difficult to execute. We have deliberately structured the firm to enable us to make decisions that are consistent with this philosophy. This includes an alignment of interests with clients, a culture of individual accountability and a focus on sustainability.

3. How has the investment philosophy and process contributed to the Fund’s performance over the past three years?

Our investment philosophy helps us seek out the most compelling opportunities regardless of market conditions. Over a three-year period (to end December 2017) we delivered 13.9% versus 7.05% for our peer group and 9.0% for the benchmark.

 4. To what extent does managing downside risk play a role in allocation decisions?

At Orbis and Allan Gray we believe that the biggest risk investors face is the risk of losing money by overpaying for a share. We manage this risk by investing in shares we believe are undervalued by the market and selling them when they reach our estimate of fair value. The future is inherently uncertain, and we don’t spend our energy attempting to forecast it.  Rather, we manage downside risk by making sure our portfolios are well diversified and positioned to perform well under a range of outcomes.

 5. Does the Fund favour particular regions or sectors?

We use a bottom-up approach, focusing on individual company research. Some of our analysts focus on regions, others on sectors, in their hunt for opportunities, but we do not favour individual sectors or regions. We are benchmark unconstrained when considering how to allocate capital across regions and sectors.

 6. What criteria must a share fulfil to be included in the portfolio?

Shares must be listed and must be priced less than our estimate of their true value.

7. Over the past three years, which shares have enhanced the performance of the Fund?

The stock’s included below were some of the biggest positive contributors to the Orbis Global Equity Fund’s performance for the three years to 31 December 2017.

*The commentary above reflects our views as at 31 December 2017. Please bear in mind that we may have bought or sold, or be in the process of buying or selling, any of the investments referred to above.

8. What is the outlook for global equity markets this year? What asset allocation decisions will Orbis make to meet these challenges or opportunities? 

The FTSE World Index rose 24% in 2017, keeping the current bull market alive for a ninth year. While this has been great for global equity investors, future stock market returns do not look appealing at current valuations. Fortunately, we do not need to invest in “the market”. Instead, we can focus entirely on finding the most compelling individual opportunities on offer.  It is during times like these that blindly following an index can be particularly dangerous – and in which our style of idiosyncratic stock-picking can really earn its keep. 

Please refer to our latest quarterly commentary, available at www.orbis.com, for a more in-depth review of the types of opportunities we are finding in this environment.

 

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