Quarterly Commentary – Orbis Global Equity Fund Q1 2025

It’s been a tough decade for value-oriented contrarian investors. The global index has become concentrated and skewed, as a small number of shares have pushed markets to extremes. But when change happens, it can happen all at once, as this last quarter has demonstrated. Is the reset over? Orbis discusses this and its fund positioning in the following article.

It hasn’t been a great decade to be a value-oriented contrarian investor.

When compared against a soaring and increasingly concentrated global stockmarket, the opportunity for investors like us to deliver enhanced returns has been relatively bleak.

To be sure, scoring a few own goals along the way hasn’t helped. Our mission is to generate superior returns vs our benchmark with no greater risk of loss. And, while our net returns over the last decade have been strong in absolute terms, they’ve fallen short of the benchmark’s returns. We recognise that we have tested your patience.

Looking back, there have been two big factors at work. The first is our own internal processes and structure. With the benefit of all the data we’ve collected and analysed on our own decisions, we’ve identified several opportunities for improvement, and we have made changes.

Over the last three years, we’ve combined two of our London investment teams, changed our portfolio management structure to improve capital flow across regions, and enhanced our risk management, both at a stock-specific and portfolio level. Notably, we have also formed a Decision Analytics team to analyse our individual behavioural patterns as investors, akin to a golf coach videoing a player’s swing.

Although hard to measure with precision, we believe these initiatives are already bearing fruit. For example, by comparing our analyst team’s recommendations with the global opportunity set, we can see that the output of our “stockpicking engine” is significantly outperforming the typical global stock.

The other big factor is the market environment. We have written at length previously about how concentrated and skewed the global stockmarket benchmark has become, driven in large part by a very small number of shares which have pushed markets to extremes. Even if we had been at the top of our game, the environment of the last decade would have been a tough one in which to excel.

But one thing we have repeatedly observed is that when change happens, it can happen all at once—as this most recent quarter has demonstrated.

One minute, the stockmarket is in a state of euphoric ecstasy, convinced by the notion of American exceptionalism and giddy on expectations for the unshackling of that country’s animal spirits under a decisive, business-friendly, red-tape-cutting administration. Investors pour in.

The next minute, despondency reigns. Tariff inflation will hurt consumers, and tariff uncertainty will hurt businesses. Cutting waste will mean cutting jobs, which means rising unemployment, which may mean recession.

It’s just the other side of the same coin. But that’s the nature of economics, and investing. There are two sides to everything. What drives market prices is often determined by which side of the coin investors are choosing to look at.

We find there’s usually more to be gained by carefully examining the dark side of the coin. Looking from the other side can feel lonely and adversarial, and comes with long periods of looking stupid. But when the market environment flips, it can do so quickly, without warning, and without an intermission to let investors reposition.

For example, our long-standing underweight to the US, a relative performance drag for so long, has all-of-a-sudden flipped into a contributor. If predicting the timing of such changes in market mood can look easy with hindsight, it’s anything but simple in real time—and that’s exactly why we don’t do it.

Instead, we’re guided by how share prices deviate from our assessment of intrinsic value. While our disciplined approach can often mean we end up sitting out periods of extraordinary temporary returns as certain shares go from expensive to even more so, it’s usually worth it in the end. Share prices can only fight for so long against the gravitational pull of fair value.

The first sign that share prices have gone too far is often that even extraordinary results fail to meet lofty market expectations. In late February, Nvidia reported 78% growth for its most recent quarter, yet its stock was down the next day.

And it has not been alone. While the S&P 500 is down 8% from late February, the tech-heavy Nasdaq is down 13%, and the Magnificent Seven are collectively down 17%.

Does that mean those shares now provide good value again? Is the reset over? Not necessarily. When one considers just how stretched and skewed markets had become, it’s possible there is further to go. On a headline basis, the US still commands a 45% valuation premium. Indeed, our research continues to suggest there is much better value elsewhere. Whether it’s the likes of SK Square trading at a fraction of the value of its listed stakes, Genmab trading below the value of its existing drugs (with no value credited to future development) or the solid Elevance Health at just 13 times next year’s earnings with no discernible tariff risk, we continue to find shares priced at very reasonable levels with attractive margins of safety to the downside.

On previous occasions when markets have become as dislocated as they still are today, we’ve typically found that shares neglected in the euphoria don’t just protect downside in a market sell-off, they can actually go up as investors remove their blinders. So it is that, amid the declines in the Nasdaq, European stocks are actually up year-to-date. In dollars, Japanese shares are up. Global value stocks are up.

In terms of pattern recognition, that’s an encouraging sign for value-oriented contrarian investors like us. Looking forward, we hope and expect that our discipline—and your patience—will finally turn out to be well rewarded.

Financial advisers can contact their local Business Development Manager to learn more about the Orbis funds.

This insight has been designed for institutional/professional investors or professional advisers. It is not suitable for a direct retail audience.

Share: