Orbis Investment Management Limited Excellence in Asset ...


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  • Good afternoon. Since this presentation is going to be just over 5 minutes long, what I am going to do is to focus on the one or two most important things you should know about us. These are how we think and what we believe in. Everything else flows from that. First let me very briefly introduce our group. Our founder, Allan Gray, who has been managing assets for over 30 years, first for Fidelity, and since 1973 for his own firm in Cape Town, formed Orbis about 12 years ago. We are based in Bermuda and London.
  • In Bermuda we now have 24 people. We manage the portfolios from Bermuda and have about one-and-a-half billion dollars under management. In London we have 25 staff. Our advisory office is in the West End and London is where most of our research analysts are based. Allan Gray Limited in Cape Town manages about $6 billion of South African domestic assets, mostly for pension plans. At Orbis we manage a range of long only equity portfolios and we manage hedge funds. The hedge funds are driven by the alpha generated in the long-only equity portfolios. And that alpha comes overwhelmingly from our ability to pick stocks that generate superior long-term returns. So let me explain what we believe in and therefore how we approach this.
  • We look for great investments using a common sense , fundamental approach. Our philosophy is similar to that of Benjamin Graham. We are really business analysts . We assess the value of businesses and try to find those whose market price significantly understates our assessment of what that business is worth. We believe that the market price in the long term will reflect the intrinsic business value. But since short-term movements are very highly influenced by investor sentiment, we are much less confident about when that value will be realised. So it is important for us to diversify this risk to the extent that we can without diluting our research effort and to have the patience to take a three to five year investment horizon when we invest in companies. If one is disciplined about doing this, and it is difficult to overstate the challenge of THAT, and is able to remain independent in one's thinking, this philosophy has the potential to generate significantly superior returns AND reduced risk of loss over the long term. I'd like to be take a minute to try to illustrate what we think is an important aspect of human behavior that affects how people invest.
  • Imagine that you walk out one frosty morning to go ice skating and you are presented with a choice of two ponds. The ponds are identical in all respects except that on pond there's a crowd of very excited people skating wildly and on the other is a single person skating very slowly and looking carefully at the ice. Which pond are you more likely to feel comfortable on? Human nature is to assume that there is safety in crowds and that all those people can't be wrong, given their combined intelligence and knowledge. I think it's fair to say that most people would feel more comfortable heading for the popular pond. Unfortunately, the rational view is that everybody is thinking the same thing about each other and therefore nobody has thought for themselves about which is the safer pond to be on, except the lonely guy on the other pond. It is unfortunate because, the crowded pond is far more likely to give way. Fear, greed and the tendency to behave like a herd causes investors to experience booms and bust. So we search the equity markets for the consequences of greed and fear and try to find the empty ponds and keep clear of the crowded ponds.
  • As a result of this philosophy we are Contrarian . Not for the sake of it, but because the greatest opportunities are usually in overlooked and in unpopular areas and it is both more difficult and it is unusual to find great value where others are very optimistic. We're Value-Oriented , but this does not mean that we pick stocks because they have a low P/E ratio or that we avoid companies with high growth rates. To us something has value if it is being sold for substantially less than we think it is worth. We actually like high growth rates but they often attract a lot of attention and except in unusual circumstances, such as currently exist in Japan, there are few bargains in such stocks. Our portfolios are generally very Focused , and so are we. You do not need more than about 50 primary positions to obtain most of the benefits of diversification. It is very difficult to know hundreds of companies well enough to have the conviction that your assessment of their value is more correct than that of others. It is more important for us to be successful over the Long Term than the short term. We don't try to manage short-term returns because to a great extent these returns are driven by sentiment not value and if we tried to manage them it would diminish our long-term results. We find that we have a much higher success rate at predicting long-term outcomes. If we were to minimize short-term tracking error in our funds, we would simply be diluting our stockpicking with an index investment and thus delivering more mediocre results and providing less of a service for our investors.
  • Of course as that famous American baseball player and coach Casey Stengel said: "Knowing how to do something and doing it are two different things". So, I would like to close by showing you what we have been able to do over the last 12 years.
  • Since inception, the Orbis Global Equity Fund has outperformed the World Index by an average of over 7% per annum after fees. The blue line on the chart is the Orbis Global Equity Fund, the black line is the World Index and the red line is the Standard & Poor’s global equity fund sector index. The table shows returns for various periods to date, the fund’s ranking within its peer group and the number of funds that have history for that period. The fund is always fully invested, it does not gear or use warrants, the returns are net of our fees (which are performance based). There are no front or back end loads and there is no bid-offer spread. It is not really good enough just to say how we done with one fund without also showing how we've done in all of our equity funds.
  • You have just seen the results of the global fund. Here you can see that our Japan Fund has outperformed its local index by 16% pa over the 4 years since its inception. Our Africa fund has outperformed its local index by 24% pa over the 3 ½ years it has been offered. Very long-term results of the philosophy are evident in the results of Allan Gray Limited’s domestic South African equity portfolios. These have outperformed their local market by an average rate of 11%pa over the past 27 1/2 years. On wondering about the future we find it encouraging that our philosophy and style have demonstrated themselves to be successful across geographic regions and over market cycles. Before I finish, I would like to add that one of our greatest concerns is that investors might evaluate us with a too short-term focus. The last two year’s relative returns of the fund of 30% per annum are not sustainable and they and the previous two years, when the fund simply kept pace with the market, should not be viewed in isolation of each other. I'll stop there given the limited time we have allotted and thank you very much for being interested in what we do .
  • Orbis Investment Management Limited Excellence in Asset ...

    1. 1. Orbis Investment Management Limited Excellence in Asset Management Conference London, 29 th January 2002 Geoffrey Gardner Director of Fund Management
    2. 2. Locations Bermuda - Primary office 24 staff Portfolio Management North American Research Trading London - Advisory office 25 staff Global Research Risk Modeling Information Technology <ul><li>Cape Town - Allan Gray Limited </li></ul><ul><ul><li>75 staff </li></ul></ul><ul><ul><li>Largest independent retirement fund asset manager in South Africa </li></ul></ul><ul><ul><li>Market leading 27 year track record </li></ul></ul><ul><ul><li>Advisor to Orbis Africa Equity Fund </li></ul></ul>
    3. 3. Philosophy <ul><li>Common sense. </li></ul>We believe the share prices of such companies will eventually appreciate to reflect the intrinsic business value. The timing of the price move is uncertain, but we are prepared to be patient and invest in the company with a three to five year investment horizon. If executed in a disciplined and consistent manner such an investment philosophy offers the potential for superior returns and reduced risk of loss. We are business analysts who seek to invest in shares of companies that trade at significant discount to our assessment of the intrinsic value of the business.
    4. 4. Human Behaviour <ul><li>Safety in numbers? </li></ul>
    5. 5. Style Summary <ul><li>Contrarian </li></ul><ul><ul><li>We often find ourselves buying shares that few others like and selling them when they are popular. </li></ul></ul><ul><li>Value-oriented </li></ul><ul><ul><li>We are not 'value' managers in the sense of buying only stocks with low price/earnings ratios or avoiding companies with high growth. We focus on intrinsic value and hold shares selling at low prices relative to their intrinsic value. </li></ul></ul><ul><li>Focused </li></ul><ul><ul><li>Each of our equity funds typically contains no more than 50 primary positions at any one time. </li></ul></ul><ul><li>Long term </li></ul><ul><ul><li>Intrinsic value often takes time to be recognised by the broader market. We therefore do our research with at least a four-year time horizon and our funds tend to buy and hold. </li></ul></ul>
    6. 6. Casey Stengel Knowing how to do something and doing it are two different things  
    7. 7. Orbis Global Equity Fund Net of fees in US$ from inception 31 December 1989 to 31 December 2001.
    8. 8. All Equity Fund Returns (%) Net of fees to 31 December 2001. Avg Fund data source: Standard & Poors’ Micropal. World Index: FTSE World Index total return.
    9. 9. Orbis Investment Management Limited