Orbis has maintained a relatively good performance in world markets as other performers have experienced volatility
Over the past three years global equity funds have been particularly volatile with the past 12 months seeing fund managers torn apart by disastrous performance in the world markets. And although some funds have been strong performers, the average returns over three years have been negative.
The Orbis Optimal USD, Orbis Global Equity and Orbis Optimal (euro), all managed by William Gray, have performed well and with relatively low volatility.
Geoffrey Gardner, director of fund management at Orbis, explains the low volatility has been because of the investment strategy used for the funds.
Orbis has a contrarian approach to investing. Gardner says: '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 portfolio for the funds on 50 prime positions. The fund uses proprietary research. Orbis 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, the Orbis Optimal has had a significantly lower beta than the Orbis Global Equity. Gardner explained 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 says: 'This was because the Optimal Euro is hedged into euros and euro returns are measured in dollars.'
Currently, the funds have an overweight position in mid-cap, domestically-orientated Japanese companies. Gardner explains 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 an aura of despondency in the economy.
Orbis has found value in stocks like consumer electronic retailing company Yamada Denki, which is expected to grow and has returns of around 20% per annum. In addition, Gardner likes Aioi Insurance as it is selling at half its net asset value.
One of the top performers, although at the expense of high volatility, is the Kapitalfonds LK New Growth, managed by Torgny Bramberg.
Bramberg says the high beta of the fund over the past three years was because 70-80% of the fund is invested in the Nasdaq. Over the past three years the Nasdaq has been extremely volatile, technology shares have suffered tremendous losses. In addition, he explained that volatility has been caused because the portfolio has a preference for growth stocks. If a stock with a high PE ratio starts performing badly the volatility of the portfolio increases.
The Kapitalfonds LK New Growth throughout the past three years has had slight overweight positions in data telecommunications, public telecoms and private telecoms. Bramberg explains the data telecommunications market has been a high growth market.
He has also started to invest in semiconductors about a year and a half ago 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 says his strategy comes from this. He explained he has a deeper insight and knowledge about products in the market as well as future expectancy of these because of his background.
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.
• Orbis's low volatility is attributed to the investment strategy used for the funds.
• Orbis has a contrarian approach to investing.
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