In this article our sister company, Orbis, discusses how Russia-led volatility underscores the need for calm, considered action.
As recently as two weeks ago, it was still unclear whether or not Russia would launch a full-scale invasion of Ukraine. It is now all too clear that Putin wasn’t bluffing. At times like these, our first thoughts are always with those who are in harm’s way.
As stewards of your capital, our responsibility is to remain calm, assess the impact on existing holdings in the Orbis Funds, and evaluate any new investment opportunities that may arise amid extreme volatility. When markets are shocked by unexpected events, gaps between prices and fundamentals can open and close quickly—and it is in those moments when our investment decisions can make the most difference.
The direct impact on the Orbis Global Equity Fund from exposure to Russian equities has been limited.
“When markets are shocked by unexpected events, gaps between prices and fundamentals can open and close quickly.”
In response to the Russia/Ukraine-led market volatility we have looked for opportunities to add to shares of businesses that we believe will be unaffected over the long term. One of the great strengths of our research capability is that we always have a ‘wine rack’ of well-researched companies whose shares are candidates for additional capital whenever they go on sale.
Some examples include Fleetcor and Global Payments in the US. Both are recent additions to our Global Equity Strategy and both trade at significant discounts to the US market despite attractive long-term growth prospects. And given the nature of their businesses—technology to help companies pay their bills and process payments—we believe that they should be almost completely unaffected by recent geopolitical events over the long term.
Amid the chaos, both Fleetcor and Global Payments appear safely ensconced in what we have referred to in past commentaries as the “Boring Middle”—a cohort of businesses that offer a compelling combination of growth and value.
“We recognise that the facts can change very quickly and many questions remain unanswered.”
Commodity-related shares have also been an extremely valuable source of diversification as oil and natural gas prices have risen sharply along with a range of agricultural commodities and metals. The latter should bode well for a number of holdings across the Orbis Funds with commodity exposure, including Teck Resources and Vale—two positions we have added to recently.
Of course, we recognise that the facts can change very quickly and many questions remain unanswered. There is a whole Pandora’s box of issues for investors to unpack in the weeks and months to come. How will these developments affect the Fed’s plans to raise interest rates? How much worse will inflation get? Will China be emboldened to attack Taiwan? What are the longer-term implications of a new Cold War?
These are tough questions. We certainly don’t have all the answers, and we are bound to get some of them wrong. The good news is that we don’t need all the answers in order to build a compelling portfolio of individual stock selections. You can also be confident that we will be prepared to act accordingly as circumstances change and fresh opportunities arise.
Financial advisers can contact their local regional manager to learn more about the Orbis Global Equity Fund.