The gateway to genuine diversification

As we discuss in our white paper, Sunrise on Venus, long-term inflation could be substantially higher than markets expect. This is a game changer for multi-asset portfolios, as inflation can flip the ‘traditional’ relationship between bonds and equities. Meanwhile, high stockmarket valuations point to potentially disappointing returns ahead for assets that were the winners of the last decade.

To thrive in the coming environment, investors must adjust their portfolios. Traditional balanced funds, while suitable for normal booms and recessions, offer little hope of outperforming cash in a stagflation scenario. However, there are some healthy alternatives.

The Orbis OEIC Global Balanced Fund is designed to navigate diverse market environments, including periods of stagflation. Our equity exposure spans several dozen stocks that we believe offer better value than fully priced world markets, providing what we think are much more attractive prospective returns. While passive funds are heavily concentrated in the US, giant companies, and technology shares, most of our holdings are outside the US, mid-sized or large rather than giant, and in other sectors.

Our approach to fixed income is also different. Instead of passively tracking bond indices, our portfolio comprises assets capable of weathering the challenges of stagflation. This includes inflation-linked bonds, gold, some corporate bonds, and cash.

We also maintain a substantial exposure to relative value, purchasing attractively valued shares and hedging out the associated stockmarket risk. If our stocks perform better than their local markets, this hedged equity exposure can generate positive absolute returns, irrespective of the economic climate.

When you piece it all together, you get a genuinely diversified portfolio that sets itself apart from conventional 60/40 or passive strategies (see below). For investors seeking diversification and long-term returns in their portfolios, the Orbis OEIC Global Balanced Fund could play a helpful role.

Balancing the blend

For asset allocators, 2022 illustrated the risks of being all-in on a single style. Even if investors had 50% of their portfolio in an active growth fund and 50% in a passive fund, that portfolio suffered greatly when growth (and increasingly growth-heavy passive) funds fell from favour. An investor holding that mix saw a drawdown of 22% and would still be down 14% today.

We believe there's a better way. By blending in good active managers with different styles, investors can balance out the overall risk of their portfolio. Going back to 2022, an investor who blended a contrarian value strategy into their portfolio could have limited their drawdown to just 8% and would currently be in the black today.

Better still, blending in contrarian value into a passive and growth portfolio did not sacrifice returns over the wonderful past decade for growth—it enhanced them.

Prepared for sunrise

The Orbis Global Balanced portfolio has changed over time, and will again as we continue to adapt to the ever-changing market environment. We are highly active investors, and we are happy to be different from our benchmark¹ and peers². It’s an approach that has served us well—since inception, the strategy has outperformed its benchmark, and is ranked in the top five among its peers³.

While many investors fear the impending sunset, we are eagerly anticipating the next sunrise. For those seeking genuine diversification, we believe the Orbis Global Balanced Fund is a useful building block.

To find out more about our analysis and how you can prepare your portfolio for a new day, click here to download and read our full white paper.

¹ Benchmark - 60% MSCI World Index and 40% JP Morgan Global Government Bond Index hedged into Sterling (“JPM GBI”), (together, “60/40 Index”)

² Peer Group - Investment Association Mixed Investments 40-85% Shares Category

³ Source: Morningstar as at 31 August 2023

Disclaimer

The contents of this communication have been approved for issue in the United Kingdom by Orbis Investments (U.K.) Limited which is authorised and regulated by the Financial Conduct Authority. Orbis Investments (U.K.) Limited and Orbis Investment Management Limited are members of the Orbis group of companies (“Orbis”).

This communication does not constitute an offer, solicitation or recommendation to buy, sell or hold any interests, shares or other securities in the companies mentioned in it. Orbis has not considered the suitability of this investment against your individual needs and risk tolerance. You must not rely upon this communication or any part of it as investment advice and Orbis does not assume and will not accept responsibility or 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 communication and disclaims any such liability to the maximum extent permitted by law. This communication represents Orbis' view at the date stated and may provide reasoning or rationale on why we bought or sold a particular security for a fund. We may take a different/the opposite view/position from that stated. This is because our view may change as facts or circumstances change. This communication has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Entities and employees of Orbis are not subject to restrictions on dealing in relevant securities ahead of the dissemination of this review. Past performance is not a reliable indicator of future results. When investing your capital is at risk.