Orbis Global Balanced scours the world for the best investment opportunities across a number of asset classes including equities, fixed income and commodities. Manager Alec Cutler believes one of the key advantages of the portfolio is the ability to focus on best ideas and making them “fight for capital”, with every holding needing to be an active contributor to the fund.
Our opinion
This is an extremely active Balanced Fund. Manager Alec Cutler and team have shown they have the ability to build a bottom-up portfolio of holdings that can perform across a variety of market conditions, adding value through equities and fixed income and asset allocation. The fund also has a contrarian approach which has been demonstrated on numerous occasions in the past, often to the benefit of investors. We also like the unique fee structure which means investors pay when the fund outperforms, but are refunded in periods of underperformance – effectively aligning the asset manager’s interest with the client.
Company description
Founded in 1989, Orbis Investment Management currently has £27bn of assets under management. The firm employs some 400 people across 10 offices globally, with its headquarters in Bermuda. The firm was founded by Allan Gray, founder of Allan Gray Proprietary Group which is South Africa’s largest privately-owned asset manager.
Orbis has eight investment strategies, all of which adhere to a single investment approach of contrarian, long-term, global investing.
Fund manager
Alec Cutler joined Orbis in 2004 and is also a director of the business. He previously worked for 10 years at Brandywine Asset Management, LLC managing the Relative Value strategy, co-managing the Large Cap Value area and co-managing the firm as a member of the Executive Committee
Alec has a Bachelor of Science (Honours) in Naval Architecture (United States Naval Academy), and a Master of Business Administration (The Wharton School of the University of Pennsylvania). He is also a Chartered Financial Analyst.
Alec CutlerFund manager
Investment process
This fund follows the wider process at Orbis of being contrarian, long-term global investors - searching for intrinsic value in the market. The firm has a bank of around 50 analysts globally, working on in-depth company research across different regions – this is in addition to the eight strong multi-asset team. All fund managers can see analyst recommendations in real time, and have access to any report or document that any Orbis analyst has ever written about a company. The multi-asset team also brings its own equity and fixed income ideas to the table – with a focus on moderate risk equities.
The process begins with quantitative and qualitative screening to identify potential areas of interest. This is followed by three phases of fundamental research, designed to find the most promising ideas. The first phase sees an analyst spending a day working on a specific idea/area – any ideas are then discussed between the analyst and the portfolio manager. The second phase is a deeper analysis, which could involve a team meeting on the idea. The final phase is an intensive look at a potential holding, this involves one person leading on the position and a further two members of the team working directly with that person.
The next stage is called Thesis Defence, this is a policy group meeting which acts as a forum for peers to review the potential addition and find possible red flags. The final stage is security selection. The fund is fairly concentrated with around 90-140 positions. Alec directly manages both the equity and currency hedging, with input from the group’s quant and currency analysts. Positions are held with a three to five-year time horizon.
A unique element of this fund is that it has no ongoing charges. Instead, Orbis charge a 40 per cent outperformance fee if the fund outperforms its benchmark (60% MSCI World Index and 40% JP Morgan Global Government Bond Index hedged into Sterling).
These performance fees flow into a revenue reserve where they are held to be used as refunds for future underperformance (the fund refunds at a rate of 40 per cent of underperformance against the fund’s stated benchmark).
The manager's fee is taken from the reserve pot – this is the lesser of a third of the reserve or 2.5 per cent of the net asset value of the fund annually. The move is designed to create a fee structure which aligns the asset manager’s interest with clients.
ESG
ESG – Integrated
While the team does not exclude any company based on ESG factors, it believes a company's approach to environmental, social and governance matters has a significant impact on its intrinsic value.
As a result, ESG is evaluated at each stage of the aforementioned investment process. When conducting fundamental research, the team will identify and analyse ESG risks affecting a particular company and integrate all material ESG factors into its assessment of intrinsic value. All final stage research reports submitted to the policy group as part of the Thesis Defence stage will include a section on the ESG considerations that may be material to a security's intrinsic value, meanwhile participants can submit ESG-related questions for discussion in the meeting.
ESG risks can also impact position-sizing decisions at the security selection stage, while the team continues to focus on its stewardship responsibilities throughout the investment holding period. This can range from engaging with investee companies to encouraging improvement in their ESG performance; voting at shareholder meetings; and monitoring material ESG factors at investee companies.
Orbis is a signatory to the UN-supported Principles for Responsible Investment.
Risk
The contrarian nature, coupled with the focus on intrinsic value, mean this fund is very active in nature, with the bottom-up stock selection likely to result in significant dispersion in performance from its peers. Alec and the team have taken big bets against the market in the past – such as moving out of a number of US growth stocks in 2017-2018 and moving into out-of-favour sectors trading well below their historical average.
Because this fund invests in companies around the world, there is also the risk of being adversely affected by changes in foreign currency exchange rates. However, the fund does have a strong support network of both analysts and fund managers to help mitigate these risks.
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