INVESTING IS OUR STRONG SUIT

A daily column on investing by Orbis Investment Management Limited

You may meet a senior representative from Orbis Investment Management Limited at the hotel. To make an appointment please contact the hospitality desk or call the Churchill Suite, room phone: 7554.

Investing in mutual funds

Orbis offers its investment management services in the form of mutual funds. It's worth spending some time considering why we do this. We used to manage portfolios individually for our clients and felt that we could offer a better service with funds.

First a brief explanation of what a mutual fund is: simply put, a mutual fund is a pool of investments collectively made on behalf of a large group of people.

Here is how it works: when you buy a mutual fund, like the Orbis funds, you are actually buying shares of an investment company. You are pooling your money together with that of many other people who like the same sorts of investments as you. A professional investment expert, known as a portfolio manager, invests it as one portfolio for the whole group. You participate in proportion to your shareholding in all profits and losses of the portfolio.

Why buy a mutual fund when you could have your own portfolio?

Access to professional management. If you do not have a very substantial amount to invest you are very unlikely to be able to have your account professionally managed by a top class investment professional. Even if you have a very substantial amount to invest it is very difficult to ensure that the best money managers are personally making the investment decisions on your account. By investing in a mutual fund you know who is making these decisions and that you are getting the same attention as all the other investors in the fund.

Efficient investment management. It is far more efficient for a manager to concentrate on one portfolio than hundreds. The most precious resource in the investment management profession is the time of those who make effective investment management decisions. Having fewer portfolios results in your manager spending more time thinking about how to invest your money. Of course, this does not guarantee better performance but it should help.

Convenience. Buying or selling a mutual fund can be simple, quick and inexpensive. You can track the value of your portfolio frequently. Reporting by funds is comprehensive and accounting for your investment is greatly simplified. By comparison, operating an individual investment portfolio can be expensive and cumbersome. Performance reporting for individual accounts is often vague or non-existent because it is very costly to produce.

More likely alignment of interest. One favourable sign for an equity is if the company's management has a significant long term ownership interest. This helps to ensure that they care about the long-term interests of shareholders. Similarly, it is preferable to have your manager's financial wealth co-invested with yours. This can be seen in the well-known hedge funds in which the manager is often the largest individual investor. Not all managers invest in their own funds but if they do it is reassuring to know that they are "eating their own cooking".