Holly Black: Welcome to Morningstar. I'm Holly Black. With me is Ben Preston. He is Manager of the Orbis Global Equity Fund.
Hello.
Ben Preston: Hi. Thanks for having me.
Black: So, I'm pretty sure it, kind of, does what it says on the tin, but I'll ask anyway. Do you want to tell us briefly what the fund does?
Preston: Yes, we're a global equity fund. We're a contrarian manager. So, we tend to sort of lean against the current sentiment. We invest in companies on a basis of buying shares below what we think is their true intrinsic long-term value. So, we spend our research time really trying to understand not what's going on right now necessarily but looking forward and trying to figure out what a company's true value is in the fullness of time.
Black: So, you are a contrarian fund manager. Where is that taking you at the moment?
Preston: Well, it's been quite a year for stocks and it's followed a decade where you've already had a huge disparity between sort of growth stocks, which have done fantastically well and more classic value stocks that have been left behind and that's culminated this year with COVID and everything else with a situation where just a handful of shares, the Microsoft and Amazons and Apples of this world, now constitute an enormous concentration of the whole global stock market. That gives us an opportunity to invest in shares which have been left behind and look for better bargains elsewhere.
Black: So, there have been a lot of comparisons made between the performance of growth and value this year, and people are asking, you know, not when but will value ever make a comeback? What are your thoughts on that?
Preston: It will do, inevitably will do, because sentiment is ingrained in all of us. We are human beings. We tend to make decisions. As well as being rational we are also emotional. And those emotions can be quite exciting for all and they often carry us too far. And so, it's very much the history of stock markets that trends begin with a kernel of truth, and then they go through a very powerful trending period and then eventually they go too far, and things get worse. And that's economics because when things are going very well, that's when more investment tends to come into an area of the market. And it's that greater level of investment that actually depresses future profits and allows something else to take leadership.
Black: What sort of catalysts do you think we would need to see a sea change though?
Preston: There are some things that would be quite good for kind of classic value investors, whether that's interest rates rising or regulation of some of these very dominant tech firms. But ultimately, we don't really look for catalysts. So, I wouldn't encourage people to be looking explicitly for catalysts. The problem with doing that is if I can see a catalyst and other people can see a catalyst, then it already tends to get into the share price. And so, if you really want to go to find a true bargain, it's often best when there's no bright spot on the horizon because that's when share prices get truly washed out, and that's when you can pick up something for much less than it's really worth.
Black: So, with growth stocks and tech stocks, perhaps in particular, how much willpower does it take to not invest in those when they have been on such a strong run?
Preston: Well, it's not so much a matter of willpower for us. It's really – we just kind of cold heart take a look at the fundamentals. And no doubt that these companies are fantastic businesses, so powerful, earning so much money and actually with bright futures as well. It's just when you compare that with the price that one has to pay to invest in those today, it just doesn't look that enticing. And so, I suppose you could say you have to be relatively strong of mind not to participate in that, not to jump on that bandwagon. But if you kind of look at the stock market history, it makes that easier because you know that these things can tend to go too far, and it can be dangerous to buy into a trend when it's very mature.
Black: Ben, thank you so much for your time. For Morningstar, I'm Holly Black.
