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Orbis - still a star
April 2003
Nigel Davies takes a look at the huge Bermudian
fund, Orbis Global Equity, and asks whether it will quickly rediscover
its ability to grow in adverse markets
As markets have crashed, companies have been exposed, recession
has struck and war in Iraq is in full swing, even the toughest of
funds have found the last three years hard to achieve the results
that clients hope for.
A consistent outperformer for the thirteen years of its existence,
Orbis’ Global Equity Fund, based in Bermuda, has suddenly felt
the pinch over the past year, prompting a relatively high level of
redemptions within the fund.
The $1.29 billion fund dropped in value by 25.6 per cent from 31 March
2002 to 31 March 2003. Longer-term returns are still riding high,
but from highs of 28.6 per cent annual growth in 1999 down to -10.3
per cent in 2002, a dramatic fall is clearly evident.
However, it’s not time to be fretting, says Orbis, of its current
downturn. The fund has always sought to invest in shares of companies
that trade at a significant discount to Orbis’ own valuations.
The belief is that the share prices of companies falling in this bracket
will eventually come good for the investor on a medium term (3-5 year)
basis.
Craig Bodenstab, head trader at Orbis, says: “Although we have
seen some losses and at the moment it’s hard to see an upturn
is global equity markets, I am convinced that Orbis’ approach
is sound. It’s a time tested fund and one that has continued
to produce results.” Figures of 10.9 per cent annualised growth
since the fund’s inception against the FTSE World Index figure
of 4.1 oer cent come readily to his defence.
The fund has, Orbis notes, performed in line with stock markets in
recent times and Bodenstab feels several factors have hindered it
progress. “In general, European financial stocks have not worked
well for us. Germany in particular has performed very badly in the
last year, and there has also been a circularity effect with banks,
too, losing much in the equity markets.” (Markets fall, forcing
banks to sell equities for liquidity and solvency reasons, thus excacerbating
the difficulties).
The fund has been criticizsd for investing too generously in aggressive,
volatile stocks. Charles Ansdell, corporate relations manager at Inter-Alliance
is critical of the fund for its aggressive stance towards volatile
stocks. “I feel the fund is overweight in Germany and Japan
and I am not sure how good a strategy that is seeing how badly they
have done. I would go for more US exposure as it has been the only
real solid performer in recent times,” he says.
However, it is a high risk fund and part of this exposure to hopefully-strong
stocks in less favourable markets, is part of its long term strategy.
Ansdell has mixed views of the account: “At the moment I would
advise caution for investors looking at the fund and suggest waiting
until the end of the war in Iraq and when we see an upturn in world
markets. However, the fund has done exceptionally well over the years
taking on aggressive, volatile stocks, and has been a good performer
for the high net worth investor willing to take on high risk.”
The fund is not available via financial advisers and charges, are
relatively competitive and provide strong incentives for good management.
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