Orbis decades of quality

1/22/2010 12:40:01 PM

Stephen Cranston

Orbis, the global equity fund founded by Allan Gray, has just celebrated its 20th birthday. True skill in asset management can be separated from luck only after a long track record.

And Gray would have needed skill to grow an initial investment of US10 when the fund was launched on January 1 1990 to $114,62, when the average global equity fund would have grown this to $27,23.

In fact, over the past decade Orbis has grown by an annualised 11% and the average global equity fund would have lost you 0,5% a year.

Other funds have survived to celebrate their 20th birthdays, but they have rarely had the same continuity in their investment philosophy. Gray, despite being in his 70s, remains closely involved, though his son William manages the portfolio on a day-to-day basis.

The style of the fund is contrarian.

By looking through the names in the portfolio you can see it is not a typical general equity fund. When Orbis opened for business, Japan accounted for 42% of the world index, but because it was such an overpriced market Orbis did not own a single Japanese share.

But Gray also believed that currency overlays should be used to add value. Orbis had a 60% exposure to yen through overlays, even though it did not own any Japanese shares. But by the end of 1998, when its peers were avoiding Japanese shares, they made up 39% of the fund, and Orbis had also set up a specialist Japan fund.

The currency overlays have often helped when Orbis’s stock selection has been ordinary. In 2008, for example, they accounted for all of the fund’s 5% outperformance of the FTSE world index, plus a little more, as the stock selection destroyed value. But in 2009, stock selection drove the 7,1% outperformance of the index.

Orbis now finds itself in unusual territory, with large investments in large-cap growth shares such as Research In Motion (makers of the Blackberry), Microsoft and Google.

Orbis stood out in 1999, as it did not own the large-cap technology shares. But many of these shares were punished in the 2008 downturn. Orbis has since even sold down many of its prized Japanese shares to make room for tech shares.

Allan Gray director Mahesh Cooper, who also acts in effect as Orbis’s ambassador to SA, says that there has often been an overlap in theme between the sister companies. “We like Dimension Data a great deal, and it is not a share we would have been attracted to during the local tech boom.”

Standard & Poor’s points out that Orbis has underperformed the median general equity fund only over three years, in 1993, 1994 and 2006. Orbis now has a large team of 37 analysts, primarily in London, but also in Bermuda and San Francisco.

Though most of its competitors no longer visit top management at listed companies, Orbis still likes to look into the whites of their eyes — though admittedly these visits were more valuable when they were investing in mid caps such as Clayton Homes and CarMax in the US, than today, when they invest in blue chips like Samsung and WellPoint.

Cooper says that while Allan Gray can cover all the shares in which it would potentially invest in SA (about 160 of them) Orbis cannot cover all 13000 shares in its universe.

Getting into Orbis Global Equity Feeder Fund, which is priced in rand, is the easiest way for SA residents to get exposure to the fund. Over three years, it is the only fund in its category to produce a positive return in rand.

Over one year it ranks second in performance to the SIM Global Best Ideas, run by Kokkie Kooyman. But this is a much more aggressive fund, often investing in frontier markets. On track record Orbis remains the quality option.