Orbis Investments
THE ONLY INVESTMENT MISTAKE YOU CAN’T COME BACK FROM
As we enter the ninth year of a bull market, attractive opportunities
are challenging to find and carefully avoiding capital loss may be
the name-of-the-game for long-term investors.
31 March 2017
Jeremie Teboul joined Orbis in
2008. Based in Bermuda, he conducts
fundamental research globally and is one of
the stockpickers who directs client capital in
the Orbis Global Equity Strategy.
Producing higher investment returns relative to the average of the world’s equity markets is a relatively self-explanatory goal; the objective of doing so
without greater risk of loss is much more nuanced. After all, the historical risk of loss cannot be accurately measured because most risks never materialise.
As a result, clients tend to look at significant declines in the price of a fund as a proxy for historical risk of loss. But simply looking back at these measures
can be misleading in that stock market environments are always different.
The Japanese equity boom which peaked in the early 1990s and the TMT bubble at the close of that decade both presented long-term opportunities for
discerning investors who underperformed during the euphoria phase to meaningfully outperform during the ensuing decline. Focusing on large sectors
that were ignored during the rush into rapidly rising parts of the market offered many opportunities to buy businesses that were trading at significant
discounts to their intrinsic value.
Today, such opportunities are far more challenging to find as the bull market that began in the wake of the global financial crisis continues to age. Faced
with uncharacteristically low interest rates, investors have been attracted by the steady and predictable dividends offered by shares of stable, predictable,
and therefore less glamorous businesses as a good source of annual income. On the other end of the spectrum investors have been willing to pay high
prices for riskier companies with heightened economic sensitivity or secular challenges, believing they are highly exposed to accelerating economic
growth. Put simply, the areas of equity markets which have historically been attractive in the advanced innings of bull markets don’t presently offer
meaningfully lower risk of loss, as they have in the past.
The risk we are most concerned about is permanent impairment of capital—the risk that in time a share ends up being worth less than we paid for it. In
the current environment, we have found a margin of safety in a number of businesses that possess wide moats and are led by outstanding management
teams, or that are out-of-favour due to temporary conditions. While stock prices could fall meaningfully in the short or medium term, these businesses
possess economic characteristics that will help protect investors’ capital.
Some—such as Air Products and Chemicals, and Berkshire Hathaway—hold large cash balances that can be readily deployed towards attractive
investment opportunities in the event of large declines in asset prices. Investments such as Charter Communications, CDK Global and Rolls-Royce Holdings
are undergoing transformations which should enhance their intrinsic value. Other investments such as Amazon.com, Priceline Group, MercadoLibre and
JD.com benefit from innovation and secular change. And lastly, some investments, such as the US health insurers and Sberbank of Russia are available at
attractive valuations due to concerns about uncertain conditions in their industries or countries.
Businesses that rely on ongoing access to capital are at greater risk of suffering permanent capital impairments. Investors are better-served finding
companies that possess strong characteristics and are well-positioned for a range of long-term outcomes.
The best time to prepare for a period of distress is before it happens rather than in the heat of the moment. As painful as short-term losses may be, they
often present compelling opportunities for investors who can be patient and capitalise on temporary turmoil, while keeping in mind the single biggest
risk to investing: the permanent impairment of capital.
All statements expressed in this commentary reflect our views at 31 March 2017.
Page 1
Read more at www.orbis.com
Orbis Investments
THE ONLY INVESTMENT MISTAKE YOU CAN’T COME BACK FROM
31 March 2017
Legal Notices
Past performance is not a reliable indicator of future results. Fund share prices fluctuate and are not guaranteed. Returns may decrease or increase as a result of
currency fluctuations. When making an investment in the Funds, an investor’s capital is at risk. This commentary does not constitute advice nor a recommendation
to buy, sell or hold, nor an offer to sell or a solicitation to buy interests or shares in the Orbis Funds or other securities in the companies mentioned in it, nor does it
constitute financial advice. Subscriptions are only valid if made on the basis of the current Prospectus of an Orbis Fund.
The discussion topics for the commentaries were selected, and the commentaries were finalised and approved, by either Orbis Investment Management Limited or
Orbis Investment Management (B.V.I) Limited, the Funds’ Manager or Portfolio Manager, as the case may be. Information in this Report is based on sources believed to
be accurate and reliable and provided “as is” and in good faith. The Orbis Group does not make any representation or warranty as to accuracy, reliability, timeliness or
completeness of the information in this Report. The Orbis Group disclaims all liability (whether arising in contract, tort, negligence or otherwise) for any error, omission,
loss or damage (whether direct, indirect, consequential or otherwise) in connection with the information in this Report.
This Report has been approved for issue in the United Kingdom by Orbis Investment Advisory Limited, 28 Dorset Square, London, England NW1 6QG; a firm authorised
and regulated by the Financial Conduct Authority. Orbis Investment Management Limited and Orbis Investment Management (B.V.I.) Limited, the Funds’ Manager or
Portfolio Manager, are licensed to conduct investment business by the Bermuda Monetary Authority.
If you are an investor in Australia, pursuant to Regulation 7.1.33B of the Corporations Regulations, this document is provided to you on behalf of the relevant Orbis
Funds by Orbis Investment Advisory Pty Ltd, Australia Financial Services Licence No. 237862, Australia Business Number 15 101 387 964.
Collective Investment Schemes (CIS) are generally medium to long-term investments. The value of an investment in the Funds may go down as well as up, and past
performance is not a reliable indicator of future results. No Manager or Portfolio Manager provides any guarantee with respect to capital or the Funds’ returns. CIS
are traded at ruling prices and can engage in borrowing and scrip lending. Commission and incentives may be paid by investors to third parties and, if so, would be
included in the overall costs. Performance shown is for the Fund or share class indicated. Individual investors’ performance may differ as a result of investment date,
reinvestment date and dividend withholding tax, as well as a levy that may apply in the case of transactions representing more than 5% of a Fund’s net asset value.
Any Fund may be closed to new investments at any time in order to be managed in accordance with its mandate. The Funds invest in foreign securities. Depending
on their markets, trading in those securities may carry risks relating to, among others, macroeconomic and political circumstances, constraints on liquidity or the
repatriation of funds, foreign exchange rate fluctuations, taxation and trade settlement.
Notice to Persons in the European Economic Area (EEA)
Each sub-fund of Orbis SICAV, a UCITS IV compliant Luxembourg fund, described in this Report is admitted for public marketing in Ireland, Luxembourg, the
Netherlands, Norway, Sweden and the United Kingdom. The Orbis Funds that are not Orbis SICAV Funds are alternative investment funds that are neither admitted
for public marketing anywhere in the EEA nor marketed in the EEA for purposes of the Alternative Investment Fund Managers Directive. As a result, persons located in
any EEA member state will only be permitted to subscribe for shares in the Orbis Funds that are admitted for public marketing in that member state or under certain
circumstances as determined by, and in compliance with, applicable law.
Fund Minimums and Prospectuses
Minimum investment amounts in the Orbis Funds are specified in the respective Fund’s Prospectus, provided that a new investor in the Orbis Funds must open an
investment account with Orbis, which may be subject to minimum investment restrictions, country restrictions and/or other terms and conditions. For more information
on opening an Orbis investment account, please visit www.orbis.com.
Clients investing via Allan Gray, which includes the Allan Gray Investment Platform, an Allan Gray investment pool or otherwise through Allan Gray Nominees remain
subject to the investment minimums specified by the applicable terms and conditions.
Copies of the Funds’ Prospectuses are also available upon request from Allan Gray Unit Trust Management (RF) Proprietary Limited, a Member of the Association for
Savings & Investments SA.
Fees and Charges
The management fees associated with the Funds vary depending upon the share class an investor purchases. Not all share classes are offered by each Fund, and the
eligibility criteria for different share classes and/or different Funds vary. Each Orbis Fund’s Prospectus (available on www.orbis.com) describes the management fees,
share classes and eligibility criteria of that Fund. Below are descriptions of the fees borne by the Funds and share classes specified, which are subject to the lengthier
descriptions in the relevant Fund’s Prospectus.
Fees and Charges (Investors in South Africa)
Shares of Orbis Global Equity Fund and Investor Share Classes of the Orbis SICAV Funds (Global Balanced, Asia ex-Japan Equity and Japan Equity): The Funds pay a
performance-based fee. The fee is based on the net asset value of the Fund (share class, in the case of the Orbis SICAV Funds). The fee rate is calculated weekly by
comparing the Fund’s (share class, in the case of the Orbis SICAV Funds) performance over three years against its benchmark. For each percentage point of three year
performance above or below that benchmark’s performance, 0.04 percentage points are added to or subtracted from 1.5%, subject to (a) a maximum fee of 2.5% per
annum and (b) a minimum fee of 0.5% per annum.
Standard Share Classes of Orbis Optimal SA Fund Limited: There are two parts to the fee: (a) a base fee of 1.0% per annum, paid monthly, of the total net assets of
each share class; plus (b) a performance fee of 20% of the outperformance of each class of Fund share’s weekly rate of return relative to its performance fee hurdle,
calculated and accrued on each dealing day and paid monthly. The performance fee incorporates a high water mark.
A schedule of fees and charges and maximum commissions is available on request from the appropriate Manager.
Page 2
Read more at www.orbis.com