Manager Research

We have recently completed the review of the Orbis fund range. We have concluded two rating changes, with the Global Equity and Emerging Markets Equity funds changing from Tier 1 to Tier 2. The balance of the fund range remains the same:

Below, we provide the rationale for the rating changes on the Global Equity and Emerging Markets Equity funds.

Global Equity

Orbis is a long-standing fund manager with many strong attributes in place which support long term active fund management according to their contrarian investment approach. During our prior review in 2019, we evaluated several changes which the business had implemented to the portfolio management process in late 2016 and (subsequently) to incentive structures. While these changes were intended to produce a better end-result for clients by bringing the firm’s best stockpickers closer to client assets in order to create a greater sense of ownership and engagement, we found it to be a significant change which needed to be monitored over time. During our most recent review, we have concluded that the changes made to the process may work against the long-standing performance outcomes which Orbis has delivered on. Historically Orbis has demonstrated a strong ability to position size investment ideas in their portfolios, and this aspect is what we are concerned with in the current review. As most of the decision makers are regional in their focus (e.g. EM, US, Japan), the ability for the team to fully test position sizes at the global portfolio level is something we struggled to gain sufficient comfort in, hence the rating change to Tier 2.

Emerging Markets Equity

We first reviewed this fund in 2014 and allocated a Tier 1 rating. Like the Global Equity Fund, we felt that the business is aligned to long term investment outcomes and supported by a strong shareholder. In addition, we were able to gain comfort around the investment process that the fund followed and in the fund’s portfolio manager, Stefan Magnusson. One concern that we did raise at the previous review in 2019 was around succession planning and we have been subsequently monitoring this.

During the most recent review, low hit rates in stock selection have led our UK team to question the efficacy of analyst recommendations. For a manager like Orbis that focuses strongly on this aspect as a source of value add, it raises a question around the likely ability to outperform in future.

Since our last review, we have also seen changes to the number of stocks that this fund is likely to hold, decreasing from around 40 positions to around 30. While we appreciate that capital allocation has been their strength, and the move to a more concentrated portfolio makes sense, we struggle to find evidence of the team’s ability to run a more focused portfolio. However, we are inclined to give them the benefit of the doubt here.

If all of these factors are added together – team succession concerns, low stock selection efficacy and a change in the number of portfolio holdings, we struggle to understand why this fund should receive a Tier 1 rating. However, we do still feel that there are signs of skill, particularly in capital allocation and this supports the Tier 2 rating on the fund.