Higher re­turns, but no greater risk

The man­ager of this fund seeks higher re­turns than the av­er­age of the world’s mar­kets, with­out greater risk of loss.

Finweek English Edition - - FUND FOCUS -

growth­has an al­most ir­re­sistible allure for in­vestors, whether it’s a rapidly grow­ing econ­omy, a start-up with a hot new prod­uct, or a new in­dus­try that prom­ises to trans­form our lives. In­vestors are nat­u­rally drawn to op­por­tu­ni­ties that seem to of­fer the great­est long-term growth.

His­tory, how­ever, tells a very dif­fer­ent story, in­di­cat­ing that the re­la­tion­ship be­tween eco­nomic growth and stock re­turns is ten­u­ous, even if you’re able to make con­sis­tently re­li­able fore­casts. A big ‘if’, and not even that would guar­an­tee su­pe­rior re­turns.

There are sev­eral rea­sons for this, ex­plains Al­lan Gray’s Tam­ryn Lamb, who is head of Or­bis Client Ser­vic­ing in SA. Or­bis is Al­lan Gray’s off­shore in­vest­ment part­ner. Fu­ture re­turns for share­hold­ers, for in­stance, could be re­duced by com­pe­ti­tion, or driven up by ex­cite­ment about growth.

One of the worst things an in­vestor can do is to over­pay for stocks on the ba­sis of un­re­al­is­tic ex­pec­ta­tions.

“We find it more re­ward­ing to fo­cus on val­u­a­tion,” she says.

“Rather than start­ing with a top-down view of the world and mak­ing de­ci­sions about which coun­tries or sec­tors look the most at­trac­tive, we take a bot­tom-up ap­proach.

“While this ap­proach is by no means fool­proof, the beauty of it is that we don’t need to wait un­til a whole stock mar­ket is cheap. In­stead, we can search for in­di­vid­ual shares that ap­pear to trade at a dis­count to their in­trin­sic value. This leads us to fo­cus on in­di­vid­ual com­pa­nies’ fun­da­men­tals and val­u­a­tions – not on di­vin­ing the for­tunes of whole economies.

“There are no guar­an­tees of suc­cess, but the data sug­gests that we are at least look­ing at the right things.”

Or­bis’s flag­ship Global Eq­uity Fund has gen­er­ated an 11.9% re­turn in US dol­lars dur­ing the past 27 years, com­pared with its gross bench­mark’s 6.8% and peer group’s av­er­age of 5%.

Like­wise, the Or­bis Global Bal­anced Fund has notched up an an­nu­alised 8.8% since in­cep­tion in 2013, rel­a­tive to its bench­mark’s 5.7% and peer group’s 2%.

The Or­bis Global Eq­uity Fund is de­signed for in­vestors who have made an “as­set al­lo­ca­tion” de­ci­sion to in­vest a pre­de­ter­mined amount in global eq­ui­ties. They seek higher re­turns than the av­er­age of the world’s eq­uity mar­kets, with­out greater risk of loss.

Lamb broadly un­der­pins the view that South African long-term in­vestors should be ad­e­quately ex­posed to off­shore mar­kets.

“At least 30% of our CPI or in­fla­tion is ac­tu­ally de­nom­i­nated in for­eign cur­ren­cies – much more so if you’re con­sid­er­ing liv­ing or study­ing abroad.

“Con­sider your ob­jec­tives, your spend­ing pat­terns and then de­cide how much money you can af­ford to in­vest in off­shore as­sets,” she says.

“And once you’ve made that de­ci­sion, try to stick to it over the long term.

“Of course, dur­ing the course of your in­vest­ment time hori­zon – and if his­tory is a guide – there will be times when rand volatil­ity will in­tro­duce a strong temp­ta­tion to time the mar­ket.

“If you are con­sis­tently able to take ad­van­tage of pe­ri­ods when the rand is strong to in­vest off­shore in cheap eq­uity mar­kets, or vice versa, this strat­egy would stand you in good stead. How­ever, this is very dif­fi­cult to do and more than likely you will be tempted to do the re­verse of what you should.

“Al­ter­na­tively, as long as you adopt an ap­proach of reg­u­larly in­vest­ing off­shore as part of your long-term in­vest­ment plan, these dif­fer­ences will wash out in time.

“Crit­i­cal to stick­ing to your long-term plan is be­ing able to find some­one who you can trust to man­age your money, some­one who can iden­tify op­por­tu­ni­ties where val­u­a­tions are dis­lo­cated, and who thor­oughly re­searches the fun­da­men­tals.”

Lamb be­lieves that Or­bis’s phi­los­o­phy dif­fer­en­ti­ates it­self in the mar­ket not through buy­ing low or sell­ing high or nec­es­sar­ily be­ing con­trar­ian, but rather through its in­vest­ment ap­proach and the way it makes de­ci­sions.

Un­der­ly­ing is that Or­bis is pri­vate­ly­owned, takes a long-term ap­proach, and its Head of Al­lan Gray’s Or­bis Client Ser­vic­ing in SA team em­phat­i­cally ad­heres to its phi­los­o­phy, which has been suc­cess­fully ex­e­cuted by mul­ti­ple gen­er­a­tions of in­vest­ment de­ci­sion­mak­ers for over four decades at Al­lan Gray and close to three decades at Or­bis.

“Re­mu­ner­a­tion struc­tures are based on out­per­for­mance, align­ing our in­ter­ests with our clients’,” she ex­plains. That im­plies that they only do well if clients do well.

“Our goal is to build wealth for our clients over the long term. To be suc­cess­ful in this goal, you have to en­sure you first earn and then main­tain clients’ trust and con­fi­dence so that they build the nec­es­sary con­vic­tion to re­main in­vested through­out the in­evitable pe­ri­ods of un­der­per­for­mance.

“High ser­vice stan­dards must be main­tained. A track record is hol­low and worth lit­tle if your clients have not man­aged to stay with you to ben­e­fit from it.”

Tam­ryn Lamb

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