Orbis Investment has slammed the standard industry fee structure as “not being fit for purpose” as it claims its trio of global funds delivered value for money despite “disappointing performance”.
In its assessment of value report Orbis’ fund board found the Orbis Global Equity, Global Balanced and Global Cautious funds provided “fair value” for the year ended 31 December 2019 even though “they have not delivered the performance relative to markets that we aspire to”.
The board said this was due to its “unique refundable performance fee structure” which meant the fees charged were “considerably lower than industry averages and the peer group average”.
To charge a performance fee the Orbis Global Equity, Global Balanced and Global Cautious funds are required to beat their benchmarks by 11.99%, 9.93% and 6.69% respectively, a feat that none managed to achieve last year.
Orbis covers all operating costs for running the funds, meaning there is no fixed fee to invest in the fund.
Industry fee structure ‘not fit for purpose’
Orbis Investments UK chair Dan Brocklebank (pictured) touted Orbis’ fee model as doing a better job of aligning fund manager and client interests compared with the industry standard which he finds lacking.
“In our view, the industry’s fee model is just not fit for purpose. It takes a guess as to what the value is going to be,” Brocklebank said. “And in some cases, yes, it might be great value for money. The vendor does really well. But in many cases, it’s going to be terrible.”
From the end of January, authorised fund managers (AFMs) have been required by the Financial Conduct Authority to publish value for money assessments, which require fund boards, including two independent non-executive directors, to weigh the fund on seven criterion broadly covering costs, performance and quality of service.
Rathbones, Vanguard, Aviva Investors and Axa Investment Managers are among the firms that have submitted reports. Hargreaves Lansdown, which reported in early February, shocked commentators when its assessment failed to mention the Woodford Equity Income fund.
>See also: Rathbones and Vanguard set high bar with value for money assessments
Speaking to Portfolio Adviser in late February Brocklebank said this kind of review was long overdue.
“I don’t think people intuitively mind paying higher fees if they get much higher value,” he continued. “What they hate is the ‘heads, I win, tails, you lose’ proposition where they just they feel they’re paying fees, regardless of performance and unfortunately that is how the industry has been set up.”
>See also: FCA assessments in the spotlight as Hargreaves omits reference to Woodford
Orbis Global Cautious charges modest performance fee despite underperformance
All three Orbis funds underperformed their respective benchmarks over the period.
The Orbis Global Cautious fund, launched last January, saw the biggest level of underperformance, returning 3.8% on an annualised basis versus the 10.9% returns delivered by its benchmark, a ‘30/70 index’ of the MSCI World and JP Morgan Global Government Bond Index hedged into sterling.
The Orbis Global Balanced fund which benchmarks performance against a ‘60/40’ version of the same index underperformed by 5.6%, while the Orbis Global Equity fund lagged the MSCI World Index by 3.2%.
Orbis Global funds vs benchmark over 1 year
|
Fund return net of fees (% annualised)
|
Benchmark return (% annualised) | |
| Orbis Global Equity | 18.8 | 22.7 |
| Orbis Global Balanced | 9.4 | 15.9 |
| Orbis Global Cautious | 3.9 | 10.9 |
Source: Orbis Assessment of Value report for the year ended 31 December 2019
Orbis Global Cautious was the only fund in the trio to charge a performance fee for the year, despite failing to beat its benchmark, with investors paying 0.01%.
Brocklebank explained the modest performance fee was due to the fund outperforming in the initial weeks after launching in January 2019. As performance reversed the balance of the performance fee was refunded to clients from the reserve.
In addition to being competitive on fees the fund board also highlighted that the Orbis funds had operated within stated risk tolerances and none of them had delivered negative returns over the recommended holding period of three years.
“Our conclusion is that the fee structure has worked as intended in the period under review and, moreover, due to this direct linkage between our fees and the value we add, we are well placed to continue to deliver good value for money in the future.”
