The exposure to the Orbis Global Balanced Fund has been steadily increasing over the past year, such that it comprises just under two-thirds of the Fund as at 30 September 2015. In constructing the Orbis Global Balanced Fund, shares are scrutinised through multiple comparative lenses. As always, a stock's return potential and risk characteristics are compared to those of other stocks. Orbis also compares stocks against opportunities in other asset classes - chiefly fixed income - which promotes a healthy competition for capital between its best investment ideas across asset classes and geographies.

Government bonds in developed economies are producing so little income today that dividend yields exceed long-term government bond yields. It is similarly difficult to find attractive corporate bonds that can hold their own against more stable equities with meaningful and growing dividend payouts. As a result, Orbis has preferred more stable, lower risk shares, which may aptly be described as 'better than bonds'.

While the future provides no guarantees, Orbis' track record in picking shares with these traits is encouraging. An analysis of the Orbis Global Equity Fund's history reveals that shares with these traits have historically been less risky than those in the World Index, and their returns have been meaningfully higher than World Index returns.

Importantly, just because these lower-volatility shares offer the prospect of more stable returns does not mean they are not attractively valued or contrarian in nature. Orbis has found plenty of stable businesses in beaten up parts of the market.

A good example is Korea Electric Power Company (KEPCO), which has historically been poorly treated by the Korean government, as electricity tariffs were kept low by forcing KEPCO to forgo profits and rack up debt. Government sentiment has shifted in recent years, and KEPCO is producing decent profitability, paying down debt, and - Orbis believes - is close to announcing a respectable dividend.

Orbis has also found beaten up shares in traditionally stable parts of the market. Merck is undoubtedly the least loved major global pharmaceutical, despite having an excellent pipeline touching promising areas of pharmaceutical research and development, including hepatitis C, oncology and Alzheimer's disease. However, the market's pessimism about upcoming test results has led it to ascribe near-zero value to Merck's pipeline. Orbis believes this negative view is extreme and, at its depressed valuation, Merck offers attractive long-term upside, with low risk.

Businesses can also evolve into stability - and it is exciting to identify such opportunities before the market rewards them accordingly. An example is Motorola Solutions (MSI), the dominant provider of communications systems for first responders around the world, which split off from Motorola and sold its commercial tablets unit. The continually increasing complexity of the critical communication systems MSI offers clients in energy and security services, is opening a new and very stable growth opportunity for the company to provide managed services after a customer's initial equipment purchase.

If we can continue to make disciplined bottom-up decisions over time - meticulously applying our comparative lenses - we believe that we will not only protect your capital, but also deliver superior long-term returns.

Over the last quarter, there have been no material changes to the Fund's allocation of capital to the Orbis funds, nor to its equity, currency and wider stock market exposures to different regions. With regards to individual holdings, the Fund's exposure to eBay and Paypal was impacted by the spin-off of Paypal, eBay's payments service, when Orbis accepted the offer of one PayPal share for one eBay share.

Orbis commentaries adapted by Tamryn Lamb
For the full commentary please see www.orbis.com

The 'growth' and 'value' buckets into which managers often get categorised have never made much sense to us at Orbis and Allan Gray. Simplistic criteria, such as low price-to-book ratio, mean very little in isolation, as both low- and high-growth companies have the potential to be mis-priced.

In fact, Orbis has historically found attractive investment opportunities across the growth and value spectrum, as it believes that a good investment is simply one that is priced for significantly less than its long-term fundamentals deserve. In the most recent cycle, Orbis has observed an abnormally prolonged period of underperformance for the value category, which has created a stiff performance headwind. Orbis believes the main reason for the underperformance of the value category has been falling sovereign bond yields, resulting from quantitative easing policies across developed countries.

Companies are often priced by taking the present value of the future earnings and discounting by the risk-fee rate - or yield on a sovereign bond. Thus, when the discount rate is lower, investors will pay more for a company's earnings, disproportionately benefiting high-earning growth stocks. Quantitative easing has therefore served as a meaningful tailwind to growth stocks and headwind to value stocks. If you believe bond yields will stop falling, as Orbis does, then you might expect the headwind for value shares to ease.

Equally important as identifying areas where asset are undervalued, is identifying areas or assets that are overpriced relative to intrinsic value - and leaving those to other investors. Orbis extends this philosophy to its fixed income selection using the same bottom-up research process that has proven capable of uncovering undervalued securities to scrutinise the fundamentals of bond issuers. Right now, approximately 10% of the Orbis Global Balanced Fund, which in turn comprises 64% of your portfolio, is placed in bonds, all of them corporates. Orbis' research process has uncovered no sovereign bonds that are more attractive on a risk-adjusted basis than some of the corporate bonds or higher-dividend-yielding equities available. Most sovereign bonds carry near historic low yields and Orbis simply does not regard buying high-priced low- (or even negative!) yielding government bonds as a low-risk proposition - rather, the greatest risk in investing is the risk of paying too much for an asset, and these sovereigns may well have reached bubble-like territory.

Orbis has, however, been able to find a few corporate bond issues that it believes are sufficiently mispriced to earn a spot in the portfolio. Favourite names include US telecommunications company Sprint and US aluminium producer Alcoa. In both cases, Orbis leveraged company research performed to assess the company's equity, and concluded that each is better positioned to pay interest and principal on time than the market expects.

Orbis' success in equity and bond selection largely comes down to the same thing: its ability to examine companies' long-term fundamentals and tune out the market's noise to arrive at its assessment of intrinsic value. While periods like this - when macroeconomic factors cast a larger than normal shadow on the pricing of assets - can be frustrating, they can also create the type of mis-pricings that are the lifeblood of the Orbis Funds.

Over the last quarter, there have not been material changes to the portfolio's allocation of capital to the Orbis Funds, nor to its equity, currency and or wider stock market exposures to different regions. With regards to changes in the Top 10 holdings, Samsung Electronics has declined on the back of share price weakness, whereas eBay has entered the Top 10 as a result of its shares outperforming the broader market.
Orbis commentaries adapted by Tamryn Lamb
For the full commentary please see www.orbis.com

Equity markets in the developed world have appreciated significantly in recent years, as central banks' efforts to inject liquidity into markets have driven up asset prices. This has made it more challenging for value-oriented investors, like Orbis, to find investments that meet their key criteria of being priced below fair value. For some time, European stock markets did not enjoy the boosts that US and Japanese markets received from quantitative easing (QE). That is now changing, as the European Central Bank (ECB) has begun purchasing euro-area bonds, using newly created euros to fund the purchases. Anticipation of the easing programme has already weakened the currency, driven down euro-area government and corporate bond yields, and pushed up local stock prices, at least when measured in euros.

While Orbis considers central bank moves and their impact on each holding in the portfolio, its focus is always on individual assets that it believes are worth substantially more than the market is charging to buy them. When central bank moves loom large, and it can be tempting to speculate about their effects, Orbis remains committed to finding individual stocks and bonds that are attractively valued without central bank action. If they can catch an extra tailwind from QE then that is a bonus.

Over the last year, the Fund has increased its exposure to the Orbis Global Balanced Fund and it now comprises more than 60% of the portfolio. The European investments in the Orbis Global Balanced Fund, though very different businesses, were all selected for their long-term return potential - with or without QE. For example, travel-related holdings Carnival Cruise Lines and Thomas Cook sell for discounts to Orbis' assessment of intrinsic value without any impact from easing, but they should also benefit from the weak euro increasing tourist visits to the continent. Attractively valued exporters CNH Industrial, Ericsson, Technip, and SAP should all have an added tailwind from lower eurozone labour costs. And all the holdings that have significant eurozone debt should benefit over time from lower borrowing costs.

Of course, any beneficial effects of QE do not extend to all eurozone assets. The region's corporate bonds continue to offer paltry yields, taking the lead from government bond yields that are among the world's lowest. Even 'troubled' countries like Italy and Spain can borrow money for 10 years for around 1.3%, considerably lower than the 1.9% offered by comparable US treasuries. Accordingly, the Orbis Global Balanced Fund holds just two EU bonds (Thomas Cook and Johnston Press corporate bonds) totalling 2% of the portfolio, compared to the 60/40 benchmark carrying 14.5%.

Orbis goes where security-level fundamentals and valuation take it. With no fixed asset allocations, investments are selected simply on the basis of their upside to intrinsic value and level of risk. Orbis believes that sticking to its bottom-up investment approach gives it the best shot at successfully delivering on your Fund's mandate over the long term - no matter what central banks throw its way.

Adapted from Orbis commentaries by Tamryn Lamb

After particularly strong relative and absolute performance in 2013, the Fund's performance disappointed in 2014. The primary driver of this was the underlying Orbis Funds underperforming their respective benchmarks, which included the Orbis Optimal SA Funds underperforming both cash and bonds.

The pull-back from 2013's strong performance is a painful reminder that investment returns do not come in a straight line. While this is frustrating, it is not unprecedented in Orbis or Allan Gray's history. A key driver of the poor performance across all the funds, albeit in varying degrees, was the exposure to shares of companies that are highly sensitive to the price of oil. This includes both energy sector shares as well as those in other parts of the market where oil exerts a significant influence (in Russia, for example).

With hindsight, had Orbis built the Fund's underlying exposure to energy related shares more slowly, it could have accumulated shares at an even greater discount to its assessment of intrinsic value when oil prices fell in the second half of the year. Looking forward however, Orbis' assessment of the industry's long-term fundamentals and the intrinsic value of the holdings has not changed meaningfully. In addition, valuations in the energy sector are now approaching depressed levels. Our history shows that such times can provide attractive buying opportunities, and Orbis has done just that by adding incrementally to selected oil-related underperformers.

Beyond energy-sensitive investments, another source of weakness in 2014 was the Fund's underweight position in US equities - where a bull market has continued to run - and an overweight exposure to Korea, where Orbis has found shares trading at meaningful discounts. While both exposures hurt performance in 2014, Orbis remains confident that the market will come to see the value in the Fund's Korean investments, and that these remain more attractive than many US equities, which appear fully valued.

In an environment where areas of the stock market, like the US, appear expensive, where the return on cash is unlikely to keep pace with inflation and where the total return on government bonds may fall short of that of cash, asset allocation decisions continue to prove challenging. In the Orbis Global Balanced Fund, currently comprising 46.9% of this Fund, these decisions are determined from the bottom up with all stocks, bonds and commodities competing for capital. While the Fund draws on the same investment team and research used by the Orbis Equity Funds, its lower risk tolerance results in it viewing attractive investments with a slightly different lens, preferring those names with more stable cash flows and attractive dividend yields. Combined with the ability to reduce stock market exposure through hedging, the Fund provides a flexible approach to asset allocation, with a number of levers to pull to assist in navigating the current uncertain global investment environment.

For more detailed commentary on the underlying Orbis Funds' positioning and performance please refer to the Orbis quarterly commentaries.
Adapted from Orbis commentaries by Tamryn Lamb