Alec Cutler, portfolio manager of the Orbis Global Balanced Strategy, shares his insights on why he is heavily overweight in the UK, Japanese and emerging markets. He outlines his top stock picks.

At a media event in London yesterday, Alec Cutler of Orbis Investments highlighted the case for investing in UK, Japanese and emerging market firms, saying that they are still undervalued markets.

Cutler is heavily overweight in the UK and Japanese markets, overweight in emerging markets and Europe and very underweight in the US. “We find great UK firms that are very cheap as no one is interested in them,” Cutler told the media briefing. “We use a contrarian approach, buying good firms that are out of favour but shouldn’t be,” he said.

“We have significant exposure to Japan and we are invested in Japan’s Nintendo as well as Japanese-based Mitsubishi Heavy Industries,” he continued.

Orbis isn't alone in being positive on Japan and thinking that as a result of corporate governance reforms and other measures, the Asian country deserves more investor attention. See more commentary here on Japan. Cutler is also invested in China, South Korea and Taiwan.

Cutler emphasised opportunities in the energy transition at the event, notably in upgrading the infrastructure. He drew attention to the role of cables, with 90 per cent of cable manufacturers located in Europe. He invests in the cable manufacturer the Prysmian Group as well as UK-based Drax, a renewable energy company engaged in renewable power generation and the production of biomass. Siemens Energy, which focuses on wind and natural gas turbines, energy storage and electrification of the industry, has also done well for him.

Despite the EU and Germany’s recent hike in defence spending, making defence an urgent investment topic, Cutler has trimmed down his defence stocks recently. “Defence stocks have been a top performer for us,” he said. “We bought them when they were cheap and when no one wanted them. But they have risen a lot recently so we have trimmed them down. But European defence stocks are still cheap and we haven’t sold out completely.”

Cutler highlighted the benefits of investing in artificial intelligence-related industries and semiconductors. “We’re not invested in the big, core industries like Nvidia, Google, Meta and Amazon,” he continued. But he is invested in South Korea-based Samsung Electronics, the largest global producer of DRAM chips which has benefited from the price increase of DRAM and NAND flash memory chips – driven by demand for generative AI. He is also invested in Taiwan Semiconductor Manufacturing Company (TSMC). “TSMC is one of the most important firms,” he added.

Cutler emphasised the benefits of investing in gold, which acts as an inflation hedge, and which he started to invest in 2019. "We’re also still underweight in fixed income,” he said.

Orbis Global Balanced Strategy
Cutler manages the Orbis Global Balanced Strategy which is a top quartile performer across multiple time periods in its sector.

The fund seeks to balance investment returns and the risk of loss using a diversified global portfolio. To do this, it primarily invests in shares of publicly-listed companies and bonds issued by companies and governments located anywhere in the world. It can also indirectly invest in commodities. It targets outperformance of the returns of 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).

Holdings include South Korea-based Samsung Electronics, TSMC, Japan’s Mitsubishi Heavy Industries, UK-based Drax Group, cable manufacturer the Prysmian Group, Siemens Energy focused on wind and natural gas turbines, energy storage and electrification of the industry and China’s sports equipment multinational Anta Sports.