Amid widening uncertainty and complex geopolitical risks Mark Dunley-Owen and John Christy, portfolio managers at our offshore partner, Orbis, reflect on how first principles, anchored in bottom-up research, have guided portfolio decisions within the Orbis Optimal SA Fund.
The first quarter was defined less by index movements and more by uncertainty. Investors are navigating complexities ranging from the implications of artificial intelligence (AI) to the risk of further escalation in the Middle East conflict. These are unusually complex issues, with no obvious resolution in sight. All we can say with confidence is that the range of possible outcomes has widened significantly.
In this type of environment, the Orbis Optimal SA Fund (the Fund) can really earn its keep. The Fund’s hedging framework means we are not making a directional bet on market performance. Instead, we can own undervalued businesses wherever we find them, giving us the freedom to build a truly global, opportunity-driven fund without being forced to match a benchmark’s country weights or take on market-level risk.
The United States stands out as the largest regional concentration in the Fund’s long equity exposure. But this broad exposure to the US market is hedged out, leaving the Fund exposed to relative rather than absolute value within the United States. This is a critical distinction because when you buy the S&P 500 today, you are not buying a diversified US equity portfolio. You are essentially making two very different bets: around 40% of your money goes into 10 mega-cap companies that continue to trade at 26 times earnings, even with mega-cap growth and tech stocks recently derating, and 60% of your money goes into the other 490 companies trading at 19 times earnings. That first bet is a concentrated, expensive wager. In an environment already complicated by geopolitical uncertainty, the consequences of paying too much, or of being caught on the wrong side of a sentiment shift, are meaningfully asymmetric.
This backdrop informs how we think about finding opportunity. Our experience is that the most enduring investment insights are grounded in first principles. Identifying a business that is genuinely misunderstood and where the market’s lens is distorted by legacy perceptions or short-term noise requires a level of patience and discipline that few investors are willing to commit to. When geopolitical shocks compress time horizons and push investors towards the predictable consensus, compelling risk-reward opportunities can be found through differentiation.
Corpay, the Fund’s largest holding, is a good example. The company has built a collection of niche payment networks serving mid-sized businesses, mainly in labour-intensive service industries such as transport and construction. Broader corporate payments, including accounts payable automation and cross-border payments, have become an increasingly important part of the business over time.
What stands out most about Corpay is its CEO, Ron Clarke. An exceptional operator and capital allocator, Ron has led the company for roughly 25 years and owns a 5% stake, making him particularly well-aligned with shareholders. In our view, Ron has shown a unique ability to identify attractive niches and build durable businesses with a repeatable playbook to improve unit economics.
Despite Corpay’s attractive fundamentals, its shares have lagged the market in recent years as investors have focused on a number of concerns. At various times, these concerns have included lower fuel prices, a stronger US dollar, higher short-term interest rates, and the forced sale of its profitable Russian business, while fears of an economic slowdown have reinforced the view that the company is cyclical. Concerns about disruption have ranged from the implications of electric vehicles on its fuel card business to the use of stablecoins in corporate payments.
In our view, many of the concerns weighing on Corpay reflect the market’s misunderstanding of the business. Investors tend to view the company through the lens of its legacy fuel-card operations, when the more important point is that Corpay is becoming a very different business over time. In particular, what excites us is the continued shift towards corporate payments, especially cross-border payments. These businesses offer faster growth, the opportunity for deeper customer relationships and a much larger addressable market.
For example, in cross-border payments, Corpay serves mid-sized companies that are big enough to have complex international payment and foreign-exchange needs, but without the scale or internal capabilities to manage them efficiently. These customers are often too small to be well-served by traditional banks, yet too complex for more retail-oriented fintech platforms. Corpay’s scale, infrastructure and service model allow it to fill this unmet need in a way that we believe is both valuable to customers and difficult to replicate.
Therefore, we think the market is underestimating both the durability of Corpay’s growth and the scale of its opportunity. As the business mix shifts further towards cross-border and other corporate payment services, we would expect Corpay’s overall growth rate to improve rather than slow. Over the long term, we believe the company can deliver earnings per share growth of more than 20% per annum, driven by a combination of organic revenue growth, operating leverage, accretive acquisitions and share repurchases. Yet, Corpay shares trade at just 11 times 2026 earnings, a valuation that we believe is well below intrinsic value. Even if our growth assumptions prove too optimistic, Corpay’s already depressed valuation should help limit the potential for further derating.
At a time when the macro backdrop is uncertain, we are encouraged by continuing to find opportunities like Corpay, where we believe the range of outcomes is skewed in our favour. The Fund owns a portfolio of such opportunities, each driven by bottom-up research, and each offering value relative to the market index that we use to hedge them. We expect this portfolio of opportunities to deliver reasonable absolute returns on your behalf, independently of market conditions and uncertainty.