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Financial Thaimes: Beating the trend – Stable performance rules in keeping your money safe

In 2011, at the age of 33, Andre Villas Boas became the youngest manager ever to win a European competition when he guided Porto to a UEFA Europa League title. Following a remarkable season, AVB, as he had become known, tendered his resignation and flew to London to take charge of Chelsea. He lasted just nine months before he felt the brunt of the billionaire Russian owner Roman Abramovich.

By Wiliam Frisby

Sunday 13 May 2018, 10:00AM

Since then he has won trophies, but in second-rate leagues such as Russia and China. The young bright hope that was AVB did not fulfil his potential.

There are numerous examples of fund managers with stellar track records who have moved to new investment houses and failed miserably similarly to that of AVB. To us there could be many reasons for this, ranging from changing the strategies that made them successful to just being one of the good coin flippers we discussed last week.

What AVB teaches us is that chasing performance is a dangerous and usually inefficient investment strategy. While he was manager of Porto he was lucky enough to have the services of superstar striker Radamel Falcao and Brazilian star Hulk. To us this is similar to judging an investment manager in a strong bull market.

In my opinion, investors should be wary of funds that have anything less than a 10-year track record. Moreover, special attention should be paid to the team that manages the portfolio beneath the fund. Very often you can see a distinct difference between the performance of a fund when they change the management, sometimes for the better, often for the worse.

A lot of people nowadays are buying index funds because they are cheap and they tend to go upwards over the medium to long term. Index funds do have there place and I have used them in the past, but by nature they are just going to achieve a medium/middle return as they do not allow for growth to beat the market.

Many people believe that it is actually impossible to beat the market and that Wall Street works on a pure random basis that makes it impossible to predict. I strongly disagree with this as I have seen may fund managers over the years continually beat the market year in, year out. Skill will always have its place in the world and although there are not many fund managers out there that constantly win, maybe 100 of them, but they do exist. One such outstanding figure is Allan Gray of Orbis Investment Management.

Orbis was founded in 1990 by South African-born investor Allan Gray. They currently manage over US$15 billion (about B477.75bn) and have a track record that is the envy of many in the industry.

Orbis is designed to remain fully invested in global equities at all times. It aims to provide better returns than world stock markets without greater risk of loss. Since its inception Orbis has provided clients with average annual returns that by far beat the returns of the FTSE World.

However, Orbis’ impressive returns have not come without negative periods. Its strategy of always being invested in the market means there is no way for it not to lose when we see big market crashes like in 2008.

What has been impressive is Orbis’ commitment to its core philosophies and belief that its strategies perform. After the crash of 2008/9 it only took until early 2011 for Orbis investors to be back at their pre-crash level.

For me Orbis represents the perfect equity investment vehicle. Firstly, its 100% focus on equities means it is extremely transparent and liquid. Secondly, their long track record of out-performing the FTSE World is too consistent to be chalked up to luck. Finally, Orbis has no outside ownership and its shareholders are in the low double digits.

Principally, the fund is owned by its founder and his son, William Gray, who acts as the Chief Investment Officer. For his part Allan Gray has the public profile of a mole, purposely shying away from any industry spotlight. For him and his Bermuda-based team the focus is all about adhering to their core principles of achieving the best returns for their clients.

Our analogy of football managers and fund managers is really just a bit of fun and we realise that there are distinct differences between the two professions. That being said, we fully believe in the points that we have made.

Let’s not forget that fund managers charge a fee and as investors you should only pay people who are worth their salaries. Focusing on the past performance of a fund, the size of assets, the longevity of its managers and its organisational structure are all key metrics that will result in more successful investing.

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