Orbis Investments Reaches Historic Low Exposure to US Market
The investment landscape is undergoing significant shifts, and Orbis Investments has made headlines by achieving its lowest exposure to the U.S. market in history. In recent times, the multi-asset team’s strategic decisions have echoed the ongoing growth-versus-value debate, which has gained unprecedented relevance since 2022.
Understanding the Growth vs. Value Debate
As 2022 marked the resurgence of value investing, the dichotomy between growth and value has become increasingly pronounced. Growth stocks, particularly in sectors like technology, have maintained their resilience amid market fluctuations. However, such stocks come with heightened valuations, prompting investors to reassess their risk tolerance.
Valuation Awareness as a Competitive Edge
Rob Perrone, an investment specialist at Orbis, emphasizes that being aware of valuations presents a unique opportunity for investors. “It’s another bite at the value apple,” he remarked. Given the elevated aggregate valuations in North America, Orbis’s multi-asset team is now significantly underweight in U.S. assets, mega-cap stocks, and growth-oriented investments in favor of mid-caps and value stocks.
A Closer Look at U.S. Market Exposure
Currently, Orbis’s funds reflect a historic low in U.S. market exposure. Notably, the Orbis Global Balanced portfolio allocates approximately 35% to U.S. equities, which is 28 percentage points below its benchmark—a 60/40 split between the MSCI World Index and the JP Morgan Global Government Bond Index (hedged into sterling).
Both the Orbis Global Balanced portfolio and Global Equity fund have achieved a maximum FE fundinfo Crown ranking of five. Under the guidance of FE fundinfo Alpha Manager Alec Cutler, the balanced fund has consistently topped the IA Mixed Investment 40-85% Shares sector over the last decade.
Adopting Hedged Equity Strategies
Despite this cautious stance towards U.S. equities, the investment team remains optimistic about market potentials. The strategy involves using hedged equity to enhance returns. Perrone explains, “We buy the stocks we like, sell short index futures, and hedge out market exposure.” This allows investors to focus on the difference between stock returns and local index returns, providing an extra yield of about 4%—a notable advantage in the current climate.
Opportunities in a Changing Market Landscape
Investment opportunities stemming from 2022 continue to yield positive results. “We were eager to engage in the first true value cycle in years,” noted Perrone, citing the recent peaks in the MSCI World Growth vs. Value ratio as a validation of their strategy.
Shifting Perspectives in the Defense Sector
Simon Skinner, head of Orbis’s global investment team, highlighted the transformation within sectors previously considered low-growth, such as European defense. Initially dismissed and relegated due to environmental concerns and governance principles, these stocks have morphed into some of the most promising industrial investments.
“What was once viewed as the lowest-quality segment of the industrial sector is now seen as having excellent growth potential,” Skinner remarked, indicating that underlying fundamentals support this renewed perception.
The Challenge of Being Contrarian
While such transformations present profitable opportunities, they also pose a challenge for contrarian investors at Orbis. As stocks gain popularity, the fleeting window of contrarian advantage may close quickly. “We may feel good temporarily when our stocks go up,” Skinner admitted, “but we are always conscious of the risks posed by market consensus.”
Fixed Income Strategy and Inflation Concerns
On the fixed income side, Orbis’s Balanced fund has opted out of nominal G4 bonds, instead focusing on selected bonds from Norway and Iceland. The fund’s treasury exposure is exclusively linked to inflation, as the team remains vigilant about rising inflation, which they deem the “bond assassin.”
Additionally, the portfolio boasts over 4% in the iShares Physical Gold ETC and includes investments in gold mining stocks. These alternatives not only provide a hedge in the event of a downturn but also serve as effective defenses against inflationary pressures.
Conclusion
As Orbis Investments navigates these complex market dynamics, its strategic decisions reflect a careful balance between caution and opportunity. The firm’s historical low exposure to U.S. markets and its evolving investment strategies indicate a commitment to thriving in an ever-changing economic landscape. Investors looking for thoughtful analysis and actionable insights may find Orbis’s approach to be a beacon in tumultuous times.
