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A multi-asset fund with no set cash/bond/equity allocations, with the managers taking a holistic approach to balancing risk and return. The fund is managed using a distinctive, naturally contrarian approach, with a focus upon intrinsic value and consideration of a company’s entire capital structure. Within its sector, the fund features in our ‘Flexible Mix, Primarily Global Bonds and Global Equities’ category.
The fund’s KIID Synthetic Risk and Reward Indicator (SRRI) is 4. This is a regulatory measurement that is, where possible, calculated from the volatility of its weekly performance over a five-year period. A score of 4 means the fund’s historic volatility is between 5% and 10%.
A risk score of 4 is in keeping with the heterogeneous peer group. Other risk statistics confirm that its value attributes differentiate it from many peers. Different share classes could have different SRRI scores.
The process is designed to harness the best ideas generated by Orbis’ equity, currency, multi-asset and quantitative research teams. Alec Cutler and Mark Dunley-Owen are portfolio managers for the strategy, with Alec Cutler responsible for the strategy overall. Timo Smuts leads Orbis’ fixed income research efforts. Adam Karr is accountable for Orbis’ investment process overall.
The philosophy is founded on the belief that the market is not always efficient or rational. The team looks to identify the stocks and bonds of companies that trade at a significant discount to intrinsic value, thereby offering a good margin of safety. Through their objective analyses of capital structures, they believe they can create a portfolio that has a better balance of risk and return. They typically invest on a three to five-year horizon and investments are often out of favour, misunderstood or spurned by investors.
Equities typically range from 10 to 60%, with up to 90% in all types of bonds and cash, and up to 20% in commodity-linked instruments. The managers may hedge the fund's stock and/or bond market exposures (to up to 40% of the value of the fund) with a view to reducing the risk of loss. Generally, the fund will have a minimum of 40% exposure to sterling and a minimum of 80% exposure to established currencies (USD, GBP, and EUR).
Prudent guidelines apart, there are no pre-determined target weights for bonds, equities and cash, and asset allocation is driven primarily from the bottom up, using the views that emanate from the research process. The capital structure is considered holistically, with bonds and equities competing equally for space in the portfolio. Valuation is paramount and every holding must contribute to the overall portfolio in a definitive way.
A highly structured research process resides at the heart of Orbis' investment approach. Equities are selected from ideas that have advanced through the company research process. The analysts use both quantitative and qualitative tools to identify stocks that are potentially trading below their intrinsic values. If the stock passes a three-stage test, the investment thesis is subjected to further intense scrutiny. Selected stocks are those that offer the best risk and return opportunities for the fund. The fixed income analysis is undertaken as part of the broader analysis of company fundamentals, and, in a similar vein, the focus is upon bonds trading below intrinsic value, which is assessed by comparing the yield of the bond with likely pay-out scenarios. As such, lower-rated bonds will be considered. In addition, investments may also be made in government bonds and commodity-linked securities.
The managers recognise that their approach could result in concentration in certain sectors and countries and/or lead to certain other characteristics. With this in mind, the risk management process identifies and quantifies these exposures and alerts the portfolio construction team in a structured, systematic way. A formal risk report highlights where the fund may be taking too much or too little risk.
Formal documentation, including the fund prospectus and the KIID, should be sought directly from the asset manager. For ease of reference, a link to the ASSET MANAGER WEBSITE can be found above, as well as a link to the ASSET MANAGER FACTSHEET.
At The Adviser Centre, our primary aim is to support financial professionals in their fund selection and suitability work through independently-minded research, borne of decades of industry experience. Our process is framed by the fundamental concepts of “quality”, “value” and “utility”, through which we answer the key questions of why to invest in a fund, how it is likely to behave and how it can be deployed.
The Adviser Centre team members are some of the most experienced in the fund research industry. We can always look forward to robust and constructive discussions and we have great respect for their views and perspectives, which, given the breadth of their fund and market knowledge, come from an extremely well-informed position.
We have known and worked with the team for several years and we value their experience and the insights they provide to our own investment process. The service differentiates itself by its more focused nature and the information on their factsheets is useful in emphasising a fund’s key mandate, exposure and style biases, helping to explain the risk/return journey that our customers can expect.
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