centro retail ...

TP Note: Interestingly Centro Retail gets a mention in this article - please scroll down to the highlighted text! - Pie
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Source: www.theaustralian.news.com.au/business

Investing on the contrary
Tim Blue | October 01, 2008

INVESTING for the long term is one of the mantras of the funds-management industry whose star looks to be rising in the wake of latest market upheavals. Out the window are the excesses of growth investing, with its emphasis on high-flyers, high turnover and high incomes for its enthusiasts, while stepping forward will be investors with time horizons of five years or more and an eye for real value.

Simon Marais, a former London-based investment chief now living in Australia, adds the term contrarian to long-term to describe his investment philosophy as he scours Australian equity markets for his portfolio and takes the opportunity to outperform the main players in the investment community.

Marais, managing director of Orbis Investment Management, an Australian-based joint venture between him and his former employers, the Bermuda-based Orbis Investment, believes short-term investing is not the way to achieve good returns over time.

"Prices of stocks in the market are so volatile and set by such small transaction volumes that it is nigh impossible to use them as a yardstick for long-term success," he says.

"You really have to judge by looking at fundamental value."

Orbis in Australia runs two funds: the Orbis/SM Australia Equity Fund for retail investors, with a minimum investment of $50,000, and the Orbis MIS Global Equity Fund for wholesale investors, where the minimum investment is $2million.

Why set up your own fund?

It's a chance to apply the Orbis investing philosophy in a relatively new market for us. I was attracted to the Australian lifestyle for myself and family, so establishing the funds here gave me a chance to do both.

What are your funds under management?

We have about $1billion under management at the moment, with about two-thirds of that in wholesale mandates and the rest from retail investors.

How would you describe the fund?

Orbis has a distinct investment philosophy that does not fit squarely into any of the popular categories of investment style. We are not about investing in high or low growth, big or small, or strong or weak companies.

Instead, we aim to invest in companies whose share prices do not reflect the intrinsic value of the underlying business. Some would call it deeply fundamental.

At times, Orbis finds opportunities in high-growth companies and at other times in low-growth companies, depending on the prevailing investment consensus and whether it believes true value is being overestimated or underestimated. Portfolio holdings are concentrated in the shares of companies whose prospects are currently most underestimated by investors. So, while Orbis is not contrarian for the sake of it, its portfolios are consistently exposed to stocks that other investors consider are deteriorating or are worse than average. We are contrarian, value-oriented managers investing for the long term.

Is there a twist on that?

Orbis often finds that the shares to which it is attracted are disliked by others -- "hated" is the word that comes to mind! -- or simply neglected. They will be companies for which no-one can find a good word at the moment, and that's where we can really home in on them to see if there is long-term value there.

You are unlikely to find great investments in areas that stockbrokers and other investors are already excited about. It is very hard to earn good returns when others already think highly of them and have moved them up.

When we look at a company, we want to know how it operates, what its competitive advantages might be, what its long-term expected returns might be -- five years plus.

How do you value companies?

Orbis is not a value manager in the sense of buying only stocks with low price-to-earnings ratios or avoiding companies with high growth.

Rather, it focuses on intrinsic value and buys shares which are selling at low prices, relative to their intrinsic value. We want decent companies at a really good price.

Because Orbis believes it can take time for a company's intrinsic value to be fully reflected in its share price; it typically adopts a three- to five-year time horizon in its research and its funds tend to buy and hold.

We hold between 40 and 50 companies, and our turnover levels tend to be quite low -- we aim for no more than 20 per cent a year although these numbers can get skewed by corporate takeovers.

Is this climate good or bad for your fund?

Usually down markets are good for long-term value investors, though in this dip we are all suffering. Over the past 12 months we are a negative 20.6 per cent, which is a little better than the benchmark, which is down a negative 21.6 per cent. Over two years we are up 3.8 per cent, while the benchmark is up 0.3 per cent.

What sort of stocks are you holding?

Our biggest at the moment is PMP, the listed printing company. It's generally disliked in a difficult industry.

But if you look around the world, the printing industry operates on a very long cycle, in part because the capital cost of printing equipment is massive and lasts for a long time. But after the initial costs you can get very good returns, because the company does not have to invest again for a long time.

PMP can be bought on a P/E ratio of eight, and while it once had too much debt, this is no longer the case. It is well managed and in a great position to benefit. We also like Centro Retail -- the smaller brother of Centro Properties now struggling under its debt load -- as it has new management, running a collection of smaller hopping centres, earning 12c a share on a share price of 12 cents.

What do you think of resources?

Generally we would be wary of resources now, because they have had such a good time. Of course there was time when BHP, for example, was not highly regarded for all sorts of reasons, such as low prices for iron ore. But there are still high expectations for resources, which makes us wary. There are some stocks we like, such as the mineral sands producer Iluka, which has been having a torrid time. Its product price has not gone up in the past five years, so the stock price has been murdered. But it dominates its industry and its material is used in bathroom appliances right round the world. A turnaround for them has to happen.

Does the fund tend to hold small caps by preference?

The Orbis/SM Australia Equity Fund fund aims to remain fully invested in shares listed on the Australian Securities Exchange at all times. The fund's investment objective is to seek long-term returns for its investors that are higher than that of its benchmark, the S&P ASX 300 Accumulation Index.

What are your fees?

We have no entry or exit fees, other than trading costs reimbursed to the funds, and the annual management fee is 75 basis points on the value of funds under management. We have a success fee, of 20 per cent of any excess above the benchmark ASX 300 performance. So for example, if the ASX 300 rose 10 per cent and we did 10 per cent, there would be no success fee. But if we did 12 per cent -- or a 2 per cent outperformance to the index -- we would take 20 per cent of that, or 40 basis points. We also have a high-water mark, so that if we should underperform the index in a year, say, any success fee would not cut in until an investor had recouped returns to match the ASX 300 performance over the period.


Ends.

Cheers, Pie :)