The 13% compounder most investors stopped paying attention to

The MSCI All Country World Index has compounded at 20% per year in US dollars since December 2022, well above the 7–8% annual return investors might reasonably expect over the long run. Strong investor risk appetite is also evident in the bond market, where credit spreads—the extra return investors typically demand when lending to higher-risk borrowers—are historically narrow.

In such an environment, where the reward on offer for taking on risk is moderating, it can become increasingly dangerous to stretch for return. Consider the chart below, which plots the valuation difference between companies that do well when credit spreads widen and those that benefit when spreads narrow—or the valuation gap between defensive businesses and their less defensive peers. You can almost think of this as a seismograph of investor risk appetite. Its peaks coincide with recognisable moments of excessive risk tolerance, such as the TMT bubble and the 2007 credit bubble, and its troughs with episodes of acute risk aversion, such as the Asian financial crisis and the global financial crisis. Today, the chart suggests that the additional return available for taking on risk is muted.

The flip side is that when investors are highly risk-tolerant, they can (and often do) overlook the value of stability and predictability. Businesses with resilient demand, recurring revenues, and a narrower range of outcomes may therefore trade at unusually attractive valuations on a relative basis.

The same pattern is coming through in our bottom-up research. Our analysts do not screen for credit spread sensitivity; instead, they seek to identify businesses trading well below what they are worth. And when we look across the portfolio, a growing share consists of businesses with predictable and enduring cash-flow profiles.

Motorola Solutions (NASDAQ: MSI), one of the largest holdings in the Global Equity Strategy, is a good illustration.

In 1973, Martin Cooper, an engineer at Motorola, stood on the pavement in New York and made the first-ever call from a mobile phone to his rival at Bell Labs. And for a long period of time, Motorola was a market-leading mobile-phone manufacturer. Who could forget its iconic flip phones? But Motorola split in 2011, and Google acquired the mobile-phone business, Motorola Mobility, the following year.

Today, Motorola Solutions is a leading player in mission-critical communications and public-safety technology. Its core business is Land Mobile Radio (LMR): think of the walkie-talkies used by firefighters, police officers, and other emergency responders. A rugged design and ultra-reliable networks are crucial—when mobile-phone networks fail during a hurricane or in a stadium with 100,000 people, police radios must still work.

Its networks and handsets must meet strict public-safety standards. They take years to procure and install, and once in place are almost never replaced. Most of the business is under government contract, and in the United States the company enjoys a 75–80% market share, reinforced by bans on Chinese competitors. For many customers, there are few viable options. This has resulted in a large installed base of hardware, with a layer of services and software on top that generates recurring revenues and adds a degree of predictability to earnings.

We have owned shares in Motorola Solutions on and off since 2011, and the position now represents around 3% of your portfolio. It has been a successful, if unglamorous, investment: revenue has grown at a steady clip, margins have expanded, and earnings per share have compounded at around 13% a year since 2010, alongside a growing dividend.

Much of the credit belongs to Greg Brown, who has been at the helm since 2008 and whom we regard as one of the best capital allocators we have encountered. His long tenure also creates a degree of key-man risk, but under his leadership the company has steadily broadened beyond its LMR base. With strong positions in video security and command-centre software, the company now provides an integrated “central nervous system” for public safety, enabling seamless communication, situational awareness, and decision-making. More recently, it has expanded into the rapidly growing market for secure wireless communications for military drones.

This transformation has reshaped the character of the business, shifting the revenue mix to a faster-growing, higher-margin, more resilient composition.

For example, each new APX NEXT device, the company’s flagship smart radio, ships with a software subscription attached, and the installed base is on course to triple over the next several years and then to grow meaningfully beyond that. New services—including an AI assistant that drafts reports and transcribes calls for officers—have been layered on top, and the incremental margins are high. Headwinds from platform investments and the transition to the cloud have depressed profitability for several years, but as these fade and the company’s subscription business continues to grow, margins should steadily increase. Consensus doesn’t seem to have caught up.

Of course, risks such as reliance on government spending, increased regulatory scrutiny, and margin pressure from rising memory costs are front of mind. But we believe the shares offer an attractive balance of potential upside and downside, particularly given the company’s predictable earnings profile. The market is paying significantly more for many businesses with less visibility.

There is also a bigger-picture element to our thesis. In a more fractured and volatile world, the assets that keep societies functioning under stress become more valuable, and governments tend to buy them regardless of the economic cycle. In 2025, Motorola Solutions bought Silvus Technologies, which makes battlefield radio networks that need no fixed infrastructure. This business has outpaced management’s expectations and looks well positioned to continue growing rapidly as NATO countries invest significantly in modernisation programmes. The company also recently bought D-Fend Solutions, a counter-drone specialist whose technology takes control of hostile drones, just as new US legislation—the Safer Skies Act—cleared the way for local police to take such action. The market is small today but growing quickly, and the company already sells to those that will need the technology.

Motorola Solutions is one of a growing number of defensive businesses in your portfolio that trade at a clear discount to our estimate of intrinsic value. While we cannot know when investors will once again place a higher value on certainty, we can focus on adding companies with predictable earnings, resilient demand, and attractive valuations to the portfolio. We think a selection of such equities in the Orbis Global Equity Strategy, chosen for their discount to our view of intrinsic value and, in many cases, an attractive balance of upside and downside, can be particularly valuable if today’s optimism proves transient.

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