Lynn, who manages Orbis’ multi-asset fund, said there is a presumption amongst investors that bonds are a safe alternative. However she argues this is not always the case and is a key risk the firm is focused on.
She said: “I think government bonds overall are just so dangerous right now. The frightening thing about them is that people assume they are low risk and this theory stems from the idea that the 60/40 is a lower risk product.
“But this came out from the thinking in the 1950s and 1960s where people said markets are priced rationally so you can’t guess if something is too expensive or too cheap, and so you buy something of everything.”
However, Lynn argues that over the last 10 years this has changed. Historically, she explained equities and bonds were not perfectly correlated and therefore, there was less volatility.
“But now we have seen equity prices and bond prices go up at the same time and bonds are not always safe, specifically when they are overpriced,” she added.
“We’ve got a situation right now where you can lend a country money for almost no return and you could actually lose quite a bit of that money if the rates start going up and the price of that bond goes down.”
Discussing Orbis’ investments Lynn explained that while the fund will occasionally hold US treasuries for cash management purposes, “we hold zero government bonds because we didn’t find any that are good value for money”.
Commenting on the recent inflation figures and potential rise in interest rates, Lynn explained Orbis is currently focused on the “precarious, dangerous situation” that the rising interest rates could present and how the firm can protect investors.
“Looking at the bull market, there are certainly indicators out there that suggest it also looks frightening. It just doesn’t seem like anything can shake the bull market with all the geopolitical situations around the globe but yet the markets just keep going up,” she added.
“And while the markets have been going up, the VIX has been going down and it’s strange. There is a degree of complacency in the market, because even though everyone is talking about how expensive it is, everyone is still invested.
“But the optimism in the base of what seems like obvious risk shouldn’t last forever.”
