While the three-year return for the offshore global equity sector is negative, individual funds have produced positive results
It has been a tough three years for the offshore global equity funds sector. In the 36 months to July 2001, the average fund in the 324-strong peer group was -1.47%.
The worst returns have come in the last 12 months with the sector average being -22.04% compared with a positive return of 13.42% in August 1999-July 2000 and 9.72% in the 12 months preceeding this.
Within this sector there are still plenty of funds that have produced high three year total returns including Orbis Optimal US Dollar (85.21%), Orbis Optimal Euro (34.91%) and Orbis Global Equity (67.67%).
They have managed this with comparatively low annualised standard deviation. The sector average is 15.62 compared with 12.72 for Optimal USD, 16.91 for Optimal Euro and 16.95 for Global Equity.
Geoffrey Gardner, director of fund management at Orbis, said the low volatility has been because of the contrarian approach to investing at the group. Gardner said: 'We buy things people do not like and avoid those that are popular.
'We look to see if the current market price of the stock is lower than our assessment of the intrinsic value of the share. This allows us to generate superior performance in the long term and meaningfully reduce the risk of loss in the portfolio.'
Orbis has focused its portfolios on 50 prime positions. The group also uses proprietary research. It has a team of analysts based in London and Bermuda who use a combination of quantitative tools and classic fundamental analysis to select companies.
Gray picks stocks by using a bottom-up process. After stocks are selected the risk characteristics of the portfolio are examined and differences to the benchmark are obtained.
However, Orbis Optimal has had a significantly lower beta than the Orbis Global Equity.
Gardner said this was because the Orbis Optimal uses futures to hedge its stock market risk and avoid losses that would be caused by declining stock market conditions.
In addition, the Orbis Optimal Euro fund did not have as high a performance as the Optimal USD but both had the same low beta. Gardner said: 'This was because the Optimal Euro is hedged into euros and euro returns are measured in dollars.'
At the present, the funds have an overweight position in mid-cap, domestically-orientated Japanese companies. Gardner said this sector has been rather overlooked and there is some good value to be found. Japan has been going through a bear market and there has been a feeling of despondency hanging over the economy.
Orbis has found value in stocks like consumer electronic retailing company Yamada Denki, which has returns of around 20% per annum.
One of the top performers, although at the expense of high volatility, is Kapitalfonds LK New Growth, managed by Torgny Bramberg.
Bramberg said the high beta of the fund over the past three years, at 2.31 against 1 for the sector, was because 70%-80% of the portfolio is invested in the Nasdaq. Over the past three years the Nasdaq has been extremely volatile and technology shares have suffered tremendous losses.
In addition, he said that volatility has been caused because the portfolio has a preference for growth stocks. If a stock with a high P/E ratio starts performing badly the volatility of the portfolio increases.
Over the past three years Kapitalfonds LK New Growth , which has produced a total return of 19.29%, has had slight overweight positions in data telecommunications, public telecoms and private telecoms.
According to Bramberg, the data telecommunications market has been a high growth market.
About a years and a half ago he started to invest in semiconductors and although there has been a downturn in the market he expects this area to pick up.
Bramberg has a background in the computer industry and said his strategy comes from this.
He believes this gives him a deeper insight and knowledge about products in the market as well as future expectancy of their success.
A part of Bramberg's business strategy is looking at the business cycle in a mixture of market segments.
He looks for companies that have good financial results, management skills and are expected to do well in a growing market.
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