ORBIS GLOBAL BALANCED: Fund powers ahead by being flexible

Investment fund Orbis Global Balanced scours the world for investment opportunities. Whether it’s bonds, equities or commodities, the £146m fund will hold them if investment manager Alec Cutler is confident he can generate positive returns.

Cutler’s willingness to be flexible sets the fund apart from the range of comparable mixed-asset vehicles that invest the bulk of their portfolios in equities – and the rest in bonds, typically on a strict 60:40 basis.

It also works in terms of overall performance numbers. Over the past one, three and five years, the fund has delivered positive returns for investors, with gains of 7, 51 and 34 percent, respectively. These figures are all superior to the average return recorded by its peer group over the same periods.

“I don’t want to run a fund that operates successfully in one environment but not in another,” says Cutler. It must survive and succeed in different market conditions and time periods. That means the ability not to hold fixed-income bonds when needed. It also means holding on to a lot of them when the time is right. Flexibility is the name of the game. Every share, every security we hold, has to compete for space in the portfolio.’

The fund has 114 holdings, with equities making up the largest component by asset class. Cutler’s view on the markets is simple: he thinks US equities will remain too expensive, while the UK, Japanese, European, Korean and Australian markets all look attractive. China and Taiwan are cheap, but risky due to geopolitical issues.

“A lot of British stocks are crazy cheap,” says Carter. You Brits seem to hate British companies. Take Balfour. It is one of the best construction companies in the world. If it were listed in the US, it would be worth twice its current market value.’

Other significant UK holdings include professional services firm Burford Capital (the fund’s largest UK holding company); power generator Drax; tech giant Rolls-Royce; and flooring specialist Headlam.

The fund has positions in financial stocks, but Cutler has no US banks. He believes they are far too many, all vulnerable to sudden cash outflows, potentially destabilizing their businesses.

He also argues that the widespread shorting of U.S. banks by hedge funds — buying stocks in the hope that they fall in value — should be curbed. “It could create a death spiral for the targeted banks,” he says.

The fund’s exposure to banks includes positions in Bank of Ireland and South Korean bank KB Financial. “The disruption caused by the fall of Silicon Valley Bank in the United States caused some banking stocks to sell elsewhere in the world,” says Cutler. “We managed to buy them cheaply.”

The fund’s top holdings include a stake in the gold mining company Barrick and an investment fund whose performance is tied to the price of gold. The fund’s ballast is provided by exposure to US Treasury Inflation-Protected Securities (TIPS). “These offer a real return above inflation and set the bar well for the rest of the fund,” he says.

Cutler is based in Bermuda, but Orbis – founded in 1989 – has offices around the world, including London, and has assets totaling £27 billion. The fund’s investment strategy is also used to manage portfolios for institutional clients. Sister funds, Orbis Global Equity and Global Cautious, have higher and lower risk, respectively, but have delivered inferior returns so far.

Orbis is one of the few investment houses that still charges performance fees. If it underperforms, it pays back some of that to investors.