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.
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.”