We have noted previously that avoiding mistakes—or playing the “Loser’s Game”—is critical in the current market environment. In our assessment, minimising losses is arguably more important than maximising gains at a time when many stockmarkets in the developed world appear fully valued. That’s not to say we cannot find attractive investment ideas in this environment, but it does mean that we must be even more vigilant than usual when assessing the risk-return proposition in individual shares.
Our investment approach is sometimes simplistically characterised as “looking for cheap stocks”. While we are always on the lookout for large dislocations between share prices and our estimate of intrinsic value, these opportunities can present themselves in different forms depending on the market environment. For example, back in 2009, it was easy to find classically “cheap” stocks in the aftermath of the global financial crisis. The more difficult part was deciding how to allocate capital amongst plenty of ideas.
The Orbis family of strategies is a small one. We believe we can do a better job for clients if we are focused, and we try to offer new strategies only when we believe there is a good long-term opportunity and a client need that we can meet. Over the past few years, we have become increasingly drawn to investment opportunities in emerging markets, increasingly convinced that many clients need a strategy targeting those opportunities, and increasingly comfortable that we have the capabilities to meet this need. Driven by these considerations, we launched an Emerging Markets Equity Strategy at the start of 2016, and, subject to regulatory approval, we intend to extend the mandate of our Asia ex-Japan Equity Fund to include all emerging markets.
Over the past few years, Japan has introduced a number of corporate governance initiatives to promote sustainable growth. These measures aim to improve engagement between investors and companies, and we generally regard them as a step in the right direction. To understand the relationship between shareholders and the companies they invest in, one especially important concept is the cost of capital. By incorporating the cost of capital into allocation decisions, management teams can improve the returns they deliver for shareholders and foster longer-term thinking throughout the investment chain.
As contrarian investors, we seek to look at the world from different vantage points in the hope of finding the value that others miss. This requires not only stepping back to see the broader picture, but also conducting extensive research to build the conviction necessary to take a differentiated view. Our investment in XPO Logistics stands out as an illustration of this approach. From afar, the market finds much to dislike about XPO. Its shares have lagged the FTSE World Index by 40% over the past year and 14% of its shares are sold short. Taking a closer look, we see tremendous long-term value, and a very different picture of XPO than the market does.
This Report 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 (“relevant securities”). It has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Orbis, its affiliates, directors and employees (together, the “Orbis Group”) are not subject to restrictions on dealing in relevant securities ahead of the dissemination of this Report. Subscriptions are only valid if made on the basis of the current Prospectus of an Orbis Fund.
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