Orbis Global Equiry Fund

jscol

I've never yet invested in an active fund and only have VLS type investments. Increasingly I am interested in investing in some active funds.

I've recently come across the Orbis Global Equity Fund and I am interested in the Orbis approach to fees. What Orbis say is that their fee is performance based and depends on the fund performance relative to a bench mark (which is the MSCI World Index for the Global Equity Fund.)

What Orbis say on their website is:

When we beat the benchmark, 50% of the outperformance is paid into a reserve, from which we take our fee.

And when the benchmark beats us, refunds are issued at the same 50% rate from the reserve. So we share the good times and the bad.

Every day, we compare each of our fund’s performance against its
benchmark. If the fund performs better than its benchmark, we take half of that
outperformance. If it underperforms the benchmark, a refund of half of that
underperformance is paid back to the fund.
Let’s take three very different days in the market as examples. Each day we’ll
start with £100 in the fund:
Day one:
Your £100 investment grows to £104. Meanwhile, the benchmark
grows too, but only to £102. That means we beat the benchmark by £2, and
take half as a fee: £1. Leaving your investment at £103.
Day two:
Just as there are good days in the market, there are bad ones too.
Unfortunately this is one of them, this time your £100 investment drops to £98.
However, the benchmark has dropped even further, to £96. In other words,
even though you’ve lost money, you haven’t lost as much as the benchmark.
We’ve still beaten the benchmark by £2 so the fee still applies, and your
investment would be worth £97. So, it’s important to be aware that you could
be charged a fee during a period when you’ve lost money.
Day three:
Today we haven’t beaten the benchmark. When that happens you
don’t pay a fee and we actually refund half of the underperformance from
‘The Reserve’.
Imagine the benchmark grew by £4, but your £100 investment only grew to
£102. We’re £2 behind the benchmark,half of that underperformance is £1,
so your investment is worth £103 for the day.


So this seems quite different to most funds that obviously charge a flat fee / set percentage.
I suppose this means that you have some degree of protection if the fund does badly (relative to benchmark) but have to give away a fair chunk of the excess if the fund does relatively well.

I believe that 2 other companies have tried similar approaches previously and that it hasn't been successful.

Does anyone have any thoughts about this fee structure? Is it good? Bad? Indifferent? A reason to avoid Orbis? Or a reason to consider them if this was the kind of fund I was interested in?

Many thanks

Alexland

You might want to read my thread from when Orbis Access were offering an introductory bonus:

https://forums.moneysavingexpert.com/discussion/5775047

Alex