‘This too shall pass’ is a phrase Orbis Investments’ Alec Cutler first heard whilst studying at business school, quickly teaching him about the good and bad weeks investor have in markets.
Repeated by a colleague some years later, Cutler said it taught him that “everything is temporary”, a fact he has held onto during the past few months as Covid-19 upended normality and caused a sharp market moves.
“We should always resist the urge to think that whatever it is today is what it’s always going to be,” the manager said.
“And I feel kind of at a crossroads from a market standpoint, where people are convinced that interest rates are going to stay low forever, that government bond yields are going to stay low forever and that the FAANGs are never going to get knocked off the block.
“And the world changes and that’s what makes it super exciting. Now flash forward and think about Covid and this too shall pass.”
This idea that nothing in markets will remain stagnant and trends will shift needs to be re-remembered, according to Cutler, especially when it comes to the US.
“The US equity market has been the place to be for the past 10 years. It’s been an absolute freight train,” the Orbis manager said, especially during the Covid-19 crisis as investors piled into the growth FAANG stocks [Facebook, Apple, Amazon, Netflix, Google-parent Alphabet].
Source: Orbis Investments
The FAANGs now make up over 20 per cent of the S&P 500 index, according to Orbis.
In the same way that the FAANGs dominate the US index, the US in turn dominates the global market too, with the country accounting for 48 per cent of the global market today, according Cutler.
However, he noted that the US’ share of global GDP declined in recent decades – falling from 28 per cent in 2000 to 24 per cent today.
Source: Orbis Investments
“The US level of production and global output has dropped since 2000 while its percentage of the world’s equities has only risen,” he said.
While the dominance of US and growth equities has been the ‘norm’ for some time, so has the unpopularity of UK equities. Cutler described the UK as “the most hated market in the world”.
“It’s the second most hated theme to energy and you can imagine how hated energy is. But they’re not that far apart,” he added.
But, the manager firmly believes that just as Covid-19 will pass so too will the popularity of the US and the unpopularity of the UK.
Such dominance has happened before but with a different market. Back in the early 1990s, prior to the Japan asset price bubble burst and consequential recession, Japan was 40 per cent of the world index and only 10 per cent of GDP, Cutler said.
“This is when the Japanese were going to continue to dominate the world because they were such wizards at manufacturing. But you don’t hear about that much anymore now,” the manager (pictured) said.
“At that time in the 90s Japan was the be-all and end-all and no one could see any possibility to reason or how that could change. Just as they are today with the US,” he said. 
And this view is reflected in Cutler’s £41.7m Orbis Global Balanced fund, which is run with a contrarian approach. While it does invest in the US, it has a strong position in the UK with holdings such as Bank of Ireland, AIB, Balfour Beatty, Domino’s, Drax and Headlam.
Cutler has a 20 per cent allocation to the US in the fund but he prefers Chinese internet companies over the popular US options because of three things.
One is valuation because they’re much cheaper, according to Cutler, while the second reason is “technological leadership”.
“Everyone thinks and assumes with a Western superiority complex that Google, Facebook, Microsoft have superior technologies to the Chinese equivalents but that is not true anymore. Tencent and Alibaba are now leading the way,” Cutler said.
And thirdly, unlike the US government, the Chinese authorities will support the big names as they develop a monopolies, making them more dominant.
Cutler concluded: “Think long term, don’t overreact and keep in mind that this too shall pass.”
Orbis Global Balanced has made a total return of 42.44 per cent over the past five years, outperforming the IA Mixed Investment 40-85% Shares sector but underperforming against the MSCI World index.
Source: FE Analytics
The fund has no up-front charges but does have a refundable performance fee of 50 per cent of outperformance relative to its benchmark (60 per cent MSCI World Index with net dividends reinvested and 40 per cent JP Morgan Global Government Bond Index, hedged into Sterling). The performance fee is refundable at the same rate in the event of underperformance.