Orbis, Part 2

Last week we had a look at Orbis Investment Management’s global equity fund and their Japan fund. Finally, let’s have a look at the Orbis range of market neutral funds. It’s worth comparing their annualised performance with their benchmarks:
Yen classes were also launched in January this year.
In the Equity Funds that we’ve looked at, value added through stock selection (Alpha) is measured simply as the difference between a Fund’s return and that of its benchmark index. In these Absolute Return Funds, any Alpha we extract is the difference between the return on the selected equities and the stock index futures used to hedge against stock-market risk. This collection of stock index futures (hedging basket) most often does not mirror the benchmarks of the underlying equity portfolios and thus Orbis’ Market-Neutral funds Alpha can differ from that of the underlying Equity Funds. The most significant difference in this regard stems from the fact that the underlying equity holdings in aggregate often differ substantially in geographic deployment to a global benchmark, whereas Orbis’ hedging is designed to closely match the geographic deployment of its underlying equity holdings.
Their hedging starts with a calculation that objectively and quite mechanically determines how many contracts of the major stock index futures they should sell in order to neutralise the movement in their stocks that is entirely due to market factors rather than stock-specific factors. This initial stage makes the portfolio market-neutral in relation to those indices and determines the bulk of the hedging basket. They then allow themselves some leeway to modify the market-neutral hedge.
This incremental positioning can be done for various reasons, but there are two major ones. Firstly, they might want to reduce the hedging somewhat in markets where we believe equities are attractive - i.e. where they believe that exposure to market Beta is attractive, they might allow that to some extent. Secondly, they might want to shift some of the hedging from one market to another, as they did some time ago when they did not fully hedge their selection of Japanese stocks and instead applied some additional hedging in the US because they considered a decline in the US stock-market a greater threat to the value of the Fund than a decline in the Japanese stock-market.
The size of these incremental positions is restricted. They also apply some judgment to the selection of the constituents in the market-neutral hedging basket. Orbis have recently made a change to the market neutral funds’ hedging basket, namely the inclusion of the Russell 2000 Index. To hedge Orbis’ US stock-market exposure in the past, they typically sold futures contracts using the single most representative, and most liquid US stock index, the S&P 500. This makes the Fund’s exposure to US stocks neutral with respect to the S&P 500, but this approach does not make the portfolio market-neutral with respect to the entire US market.
The S&P 500 mainly reflects the moves of the largest US stocks by market capitalisation and thus this approach tends to under-represent the small-cap and mid-cap parts of the US market.

To represent the US market more completely, the hedging basket should contain some exposure to mid-cap and small-cap indices. While not true in most stock markets, it is possible to remedy this situation somewhat in the US. Although the US lacks a liquid mid-cap futures contract, the futures contract on the Russell 2000 Index (the 2000 stocks that rank from 1001-3000 of US stocks by market capitalisation) has been reasonably liquid since the late 1990s and is now the industry standard benchmark for small-cap stocks. Allowing the Russell 2000 Index to be incorporated into the Funds’ US hedging basket led Orbis to the conclusion that a 85% : 15% mix of the S&P 500 and Russell 2000 indices would provide a better hedge than only using the S&P 500.
We support this enthusiastically and see that there should be immediate added value - the expected return for small-cap US stocks minus the expected return for large-cap US stocks. This has been calculated using Orbis’ re-rated total rate of return (RTRR) model. It shows that while small-cap stocks have offered higher prospective returns than large-cap stocks for almost all of the market-neutral Funds’ histories, this is no longer the case. In fact, analysis suggests that small-cap stocks are extremely unattractive relative to large-cap stocks on a historical basis.
In addition to this 15% allocation (which will remain a fixture) Orbis can take a view on the Russell 2000 Index and sell more or less futures than prescribed by the market-neutral hedge. Such a position, like the other discretionary increments referred to above, would be regarded as an incremental position and its size would be limited accordingly.
Whether the equity funds or the market-neutral funds, Orbis have performed exceptionally well in the past and we expect this to continue to be the case in the future.
Although the funds are now closed to individual investors, they can be accessed through the range of MBMG Private Client Portfolios.

The above data and research was compiled from sources believed to be reliable. However, neither MBMG International Ltd nor its officers can accept any liability for any errors or omissions in the above article nor bear any responsibility for any losses achieved as a result of any actions taken or not taken as a consequence of reading the above article. For more information please contact Graham Macdonald on [email protected]@mbmg-international.com.com

Snap Shots: by Harry Flashman

Samsung NV3

Walking past the local camera shop, one camera really caught my eye. This was the Samsung NV3, an all-black, slim camera that appeared to offer much, at a price that was not exorbitant. In this day and age, B. 13,990 is not at all over the top for a better range digital compact.
However, was the feature of this camera merely that of an attractive appearance, or did it have some worthwhile technology as well? Or too much technology?
There was no doubting the attractiveness when you have the Samsung NV3 in your hands. It is no lightweight, despite the very small overall dimensions, being only 17.5 mm thick. It has a minimum of extrusions and knobs, and the design is definitely clean and streamlined.
As a compact digital, it has 7.2 mega-pixels, which is more than enough for good resolution, but it has more. It also acts as an MP3 player using a special audio processing chip delivering 3D, Jazz, Rock, and other sound effects. Listen to the music via the built-in stereo speakers or included headphones. The NV3 includes a Portable Multimedia Player (PMP) to watch downloaded movies. The NV3 also doubles as a digital camcorder with MPEG-4 TVD (720x480) 20fps and VGA (640x480) 30fps, Auto Gain Control (AGC) technology minimizes zoom noise during video recording. A text viewer allows the user to read text on the LCD, or to use as an e-book, whilst the multi-tasking ability enables you to listen to music while taking pictures!
On paper, this to me looks like the microwave oven that also tells the time, slices meat and scrambles eggs, doubles as a TV set and works as an infra-red burglar alarm.
However, it looks so good, let’s look at its ability as a camera, forgetting for the time being all the MP3, PMP, AGC and MPEG-4 TVD stuff.
On the top of the camera is a simple rotary knob for the various modes available, including an Auto everything, Program, Advanced Shake Reduction (ASR).
The ASR technology prevents the degradation of image clarity and color common to flash photography. With ASR the effects of camera shake are reduced in lower light conditions. You can even take well exposed, sharper pictures in low light without using a flash at all. It guarantees brighter and more natural pictures, says Mr. Samsung.
The camera has many other good features, including, Wise Shot in which the camera takes the same shot twice, once with ASR and the other with flash. It then compares the results and lets you have the best picture of the two (i.e. flash shot if it is better than the ASR shot, and vice versa).
The NV series has an auto sensitivity feature that automatically adjusts sensitivity according to the ambient exposure conditions up to ISO 1000. The high sensitivity setting of ISO 1000 enables you to take clear indoor pictures in the dark without camera shake and image blurring.
There are other features such as the Red-eye Fix function, which is an algorithm programmed into the camera that automatically eliminates red eye in shoot and play modes, allowing you take a natural portrait photo.
There are also various ‘scene modes’ such as Night Scene, Portrait, Children, Landscape, Text Recognition, Sunset, Dawn, Backlight, Fireworks, Beach and Snow.
According to the Samsung press release, the NV Series was developed following a two year consumer research study to gain insight into the lifestyle and needs of consumers and their picture-taking interests. Samsung claims that as well as offering practical technology and easy usability, the new NV Series stands for individuality and style.
Recharging can be done using a cradle or a 24 pin USB cable, as well as by using a detachable cable. Connect the camera to a PC using a 24 pin USB cable, use the adaptor cable to plug it into a power supply, or use any other convenient method to recharge it.
To me, the camera looks excellent, but I wonder how much they could sell it for, without all the extraneous capabilities, that a photographer would scarcely ever use? Since we have phones that take pictures, I am surprised this camera doesn’t make long distance calls!

Modern Medicine: by Dr. Iain Corness, Consultant

Anaphylaxis. Anna who? Anna what?

The difficult sounding name of Anaphylaxis is just a fancy word for the most severe form of allergic reaction you can have. Those people who have experienced this will attest to just how frightening it can be. And they have good reason to be frightened - it is classed as a medical emergency as people can die from this reaction. It is also much more common than you would imagine. The quoted figures from America are that Anaphylaxis occurs at an annual rate of 30 per 100,000.
The causes are multiple and include food allergy, penicillin, cephalosporin and sulfur drugs, intravenous contrast medium (used in some special X-Rays), aspirin and non-steroidal anti-inflammatory drugs, walnuts, cashews and pistachios and insect stings.
The commonest food allergy is peanuts and again going to the American figures, peanuts cause 30,000 documented cases of Anaphylaxis every year and 200 deaths within that figure. (And you never imagined that those nuts on the bar were killers, did you? Just another reason why your mother wanted you to stay out of those bars of ill repute.)
The symptoms include a very sudden and severe breathing problem (bronchospasm - the basis of asthma), itching around the mouth, flushing of the skin with large swellings, plus swelling of the face, tongue and mouth, some gut pains and sometimes nausea and vomiting and finally a lowering of blood pressure (which can cause a loss of consciousness) and increasing difficulty in breathing.
Although Anaphylaxis does mimic an asthmatic attack, the difference is in the speed of the attack and the rapid progression of the bronchospasm, plus the skin effects that come with it.
With Anaphylaxis, the patient should be hospitalized, even if they appear to have recovered from the acute symptoms as there is something we call the “biphasic reaction” which sees a recurrence of the symptoms. This can be even more severe than the initial attack, so we recommend that patients be kept in hospital under observation for 12 hours, in case there is this biphasic reaction.
The treatment of the acute phase is injection of Adrenaline 1/1000 strength, oxygen by mask or by tube if the swelling is producing too much of an obstruction, intravenous saline to boost the blood pressure plus intravenous steroids and even some antihistamines. Not the sort of things you keep at home in the cupboard above the bathroom sink!
The management of the condition from the long term point of view goes into trying to find out and eliminate the allergen causing the problem. With the food allergies this is very difficult, and usually involves withdrawing each “perhaps a problem” food from the diet, one at a time. But start with peanuts, if peanuts are something commonly eaten, and something that was eaten on the day of the last attack. Do not suppose that the triggering item is bananas if you didn’t have a banana before the last episode of Anaphylaxis.
So what should you do if you are a person who suffers from these acute allergic responses? Well, if it were me, I would alert those around me to the dangers and advise them on what to do - mainly to get you to the hospital as soon as possible - remember that this is a medical emergency. I would also be looking at keeping a supply of 1/1000 Adrenaline injectable for immediate use. There are commercially available auto injectors in some overseas countries called “Epipens” for this purpose. And I would also be consulting the nearest allergist (a branch of internal medicine) and following this doctor’s advice. I repeat, Anaphylaxis is a life threatening medical emergency.

Learn to Live to Learn: with Andrew Watson

The global desire for change

At International Baccalaureate Organisation (IBO) regional conferences, former Director General, Professor George Walker, used to be referred to affectionately by many of the delegates (and I am pretty sure without his knowledge) as ‘Uncle George’. During his tenure, he consistently demonstrated an extraordinary capacity to synthesise his life’s experiences with discourses from science, literature, history, music, politics, business and management, into a compelling vision of education for the twenty first century.
In “International Education in Practice” (eds. Mary Hayden et al, 2002) he speaks of a “global desire for change” deriving from a dissatisfaction with the ‘status quo’ in a world situation characterized by tensions between cultures and religions, and by wide economic disparities. Whilst it is easy to agree that the symptoms ‘Uncle George’ refers to are all round us, I am less certain whether such a desire for change, as he describes, truly exists. In the heart and minds of men and women, I have seen little evidence of it.
In a world characterised by a widening disparity between rich and poor, not only nationally but transnationally, where a cult of immediacy creates, allows and encourages immediate gratification, it takes a tremendous personal effort to concentrate on something other than the ‘self’. It is no coincidence, I suggest, that the ‘self’ has become subliminally branded, ruthlessly and sometimes cynically targeted by advertising agencies who promise in their platitudinous jargon, to ‘make you better,’ to ‘make you thinner’ and even ‘make you a leader’ in a globe where ‘nothing is impossible’.
It’s easy to believe that life is all about ‘I’, ‘me’ and ‘mine’. Websites extol empowerment of the individual, rather than the community. Thus it is no surprise when periodically, news media is filled with tales of data charting the latest stage of the fragmentation of family values, traditional values and the erosion of cultural values. Seemingly, this is happening at an inexorable and ever increasing rate. It’s as if there is a great desire somewhere to homogenise the world into a sea of self-seeking individuals.
Sylvester (1998) seems to be among those who might agree; “It is increasingly evident in the advertising industry that a global perspective is being exploited directly by multinational corporations whose world markets are being shaped, articulated and cultivated with images of ‘one planet’, ‘one world’, ‘one market-place’ and ‘a small planet’.
Contrast this with the IB Mission statement and the IBO’s educational programmes, their doctrine, which promotes a radical, compassionate, intelligent, long term view and interpretation of global reality. There is an inherent contradistinction which needs to be addressed. ‘Uncle’ George Walker (in Isaac Quist, 2005) uses Mathew Arnold’s powerful metaphor of noisy grinding tectonic plates to accentuate awareness of perhaps one of the consequences of self-interested, self-indulgence; violent terrors and unilateral extremism that have categorised the first few years of the new millennium.
Rather depressingly, historically, it appears that little has changed. Patterns of intolerance and injustice leading to insurrection and rebellion are repeating themselves; thus I am sceptical whether, as Isaac Quist (2005) maintains, “International education and its ideals, have finally come of age.” I tend to concur with Sylvester (1998) who notes that the quantity and quality of material and data available to those of us working in international education creates strong reasons to explore “the core meaning and direction of the type of education provided by international schools and its relation to students’ views of the world.”
A UNESCO resolution as long ago as 1994 asserted that “Overcoming prejudice and ideological differences and addressing the social injustices that are the source of conflict, is primarily an educational process. It also recognises that this cannot be effectively achieved while education continues to serve purely nationalistic ends.” I must admit that on occasions I am slightly shocked by the apparent ease with which education is allowed to take on the dominant colours of one national flag, at the expense (and this is the point) of all others.
I was slightly dismayed not long ago, to see a primary age nativity play in which the children were encouraged to brandish weapons - in this case, reproduction guns; “To help them understand that they need to love and protect their country” I was told. It was Trevor Nunn meets Monty Python; Life of Brian in modern dress. Back to earth and Jenkins (1998) notes that whilst what a sense of nationalism might mean has evolved in some areas, there remains and in some parts of the world, there has increased, the historical impulse and instinct of power, force, imperialism, exploitation of natural resources and intolerance. On one hand, the forces of nationalism appear alive and well and are moving in one direction, whilst other powerful forces gain ground in another. Where and how will they collide?
What is fascinating about idealistic proponents of the ‘IB’ (such as myself) is that they seem to assume that the IBO mission statement will automatically produce left of centre clones who will regurgitate the IB mantra in a professional adult sphere. In some magical, whimsical way, we imagine that the world will be transformed and that people will no longer do what they have always done.
It is a dangerous path to take, if value laden assumptions proliferate to such an extent that (for instance) totalitarian ideologies such as apartheid, fascism and communism, are dismissed without reference to rational theory and empirical data. The victory of IBO programmes should be that students learn to explicitly recognise that points can only be proven by utilising facts and data (rather than just rhetoric) and are equipped with the skills to prove their case. That is surely the true mission of the IBO; to change people’s ways of thinking to such an extent that they can safeguard humanitarian-based outcomes in arguments and debate? Whether at local, national or supranational political level, this is an extraordinary desire or expectation.
Sometimes, ‘changing the paradigm’ can be achieved by an individual, but more often than not, it seems that ‘changing hearts and minds’ is nothing more than a vain hope, that many have had and failed to realise, before. Contrasting the fortunes of South Africa and Israel over the last twenty five years, it seems that in case of the former, visionaries of compassion succeeded (at least to some extent) in changing habitual, cultural, prejudice whilst in the latter, tragically, none have been forthcoming (save arguably, Rabin). Will the next Ghandi or Mandela be an IB diploma graduate?
Meanwhile, please support the Esther Benjamins Trust: www.ebtrust.org.uk - email: [email protected]
Next week: Changing the Paradigm