Orbis offers funds that only charge fees if they perform

Fund manager Orbis won't charge if funds underperform.

Fund manager Orbis Investments is offering two funds that only charge fees if they do well.

The Global Equity Fund and the Global Balanced Fund were previously only offered to institutional investors and high net worth individuals but are now available to all via Orbis's new Orbis Access offshoot.

Orbis has broken ranks with the rest of the fee-heavy fund-management industry by not charging entry, exit or flat fees for ongoing annual management. Instead, it relies solely on a performance fee, which is half of the fund's yearly outperformance against its benchmark (in this case the FTSE World Index).

Who is Orbis?

Orbis Investments was founded in 1989 and today manages over £15 billion of investors' money, using what it describes as 'a fundamental, long-term and contrarian investment philosophy.' Orbis' flagship Global Equity Fund has outperformed its benchmark by 4.8% a year (after fees) since inception in 1990.

This places Orbis top of its peer group in terms of performance over the past 25 years.

As a result, if UK investors had access to its main fund over the past 25 years, they would have paid an average yearly fee of several percentage points. This may seem steep compared to the 1.5% annual management charge (AMC) levied by typical UK funds.

However, Orbis levies no fee in years when it fails to beat its benchmark.

What's more, there are no entry, exit and flat fees whatever, even when you invest as little as £1.

What's the catch?

So what's the catch? Surely this is simply too good to be true?

Many funds look fantastic at first glance, but only when you dig deeper do you find many pitfalls and drawbacks. Here's how Orbis Access rates.

Flexibility and liquidity

There's no point lumping cash into a fund, only to find out that you can't pull your money out when you need to, or you have to pay a fortune in fees in order to cash out. But there are no exit fees to worry about here.

It's easy for all investors, large or small, to invest too as Orbis accepts sums from as little as £1 and there's no entry fee either.

Performance

Over the past 25 years, Orbis' main fund (the Orbis Global Equity Fund) has beaten its benchmark by an average of nearly 5% a year after deducting fees. That's a very impressive achievement.

However, always remember that, when it comes to investment performance, the past is no guide to the future. In addition, as Orbis' funds get bigger, their performance could suffer, thanks to size issues.

Fees

What Orbis Access seems to offer is the performance and absolute returns of hedge funds, but without their infamous fee structure.

Most hedge funds charge a flat fee of 2% a year, as well as taking 20% of any gains above a certain watermark. These high fees rapidly transfer money from investors to hedge fund managers, making managers rich and leaving investors wondering where their money went.

By charging a fee of 50% of any outperformance above its benchmark, Orbis Access is paid well in the good years, but gets absolutely no fees for failure. Again, this makes it a fair fund, with a fee structure that aligns the interests of both investors and fund managers.

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