Julian Marr ponders his newfound urge to buy any equity fund he hears about. Has he finally lost all perspective or is there something else going on?
The life of an investment conference chairman is a lot more dangerous than you might think. I do not mean physically dangerous – though there was that one Q&A session in Edinburgh that got quite spikey. No, it is more the way that at Events-Hub and other conferences, one is constantly being exposed to presentations pitching a particular investment opportunity in the most favourable possible light.
Furthermore – and I know this may well come as a shock to you – the person giving the presentation will occasionally touch on the faint possibility they might just know of exactly the right fund to take advantage of the investment opportunity in question. Do you have any idea what that is like? Too right I must be joking – of course you do.
“What has the world come to if you cannot take a punt that relies on analysts making a wrong call?”
Over the years though, I have built up a few techniques to stop me rushing out to buy a very tiny piece of every fund I hear about. It helps that – purely at a personal portfolio rather than professional level, of course – I am not terribly interested in bonds or multi-asset and also that, as regular visitors to this space will be aware, I long ago spotted investment and marketing cycles are not always as helpfully aligned as they might be.
Even when I do fix upon a particular fund idea, I give myself a six-week cooling-off period – which makes it even more worrying that, some four weeks after chairing the Events-Hub conferences in Knutsford and Harrogate, I still find myself curiously persuaded by almost every presentation I saw. What is going on? Have I finally lost all perspective or is there perhaps a broader issue bubbling away in the background here?
First, let’s consider some of the evidence. At Knutsford, for example, there was a typically contrarian angle from GLG Undervalued Assets manager Henry Dixon, who observed it had taken three years of falling earnings growth for analysts finally to bite the bullet and themselves forecast another such year – the intriguing thing being the UK market has not seen four consecutive years of falling earnings at any point in the last century.
What has the world come to if you cannot take a punt that relies on analysts making a wrong call, I thought to myself, before then having my head turned by the thoughts of Luke Barrs, an emerging markets portfolio manager at Goldman Sachs Asset Management (GSAM). Now I am well aware I am a sucker for emerging markets funds but the firm’s very stock-specific approach seemed an interesting sort of diversification.
“Emerging markets managers often claim to be bottom-up stockpickers but the reality is their decision-making tends to be influenced by a macro thesis,” said Barrs, “We have no core competency when it comes to judging market cycles but we can understand the nature of the businesses we are invested in.” You can read more on GSAM’s approach to emerging markets on p11 in our interview with Barrs’s boss Preshant Khemka.
Another Events-Hub speaker featuring in this issue is Baillie Gifford Pacific co-manager Roderick Snell. Harrogate provided me with a preview of his forthright argument – which you can read on page 9 – that Asia Pacific excluding Japan will be the pre-eminent emerging market of the coming decade while in Knutsford his Baillie Gifford colleague, client services director Andrew Brown, made a similarly rousing case for Japan.
“The country’s political environment is stable and policy remains supportive,” he observed. “Corporate Japan is undergoing a revival, boosted by yen weakness, while improvements in corporate governance are gaining momentum. Japan’s economy is showing signs of improvement – helped by cheaper oil – and we believe the long-term secular trends in the country remain intact.”
Nor was it just equities that piqued my interest – well, it was, but there were also ones of the property kind and global to boot. “People tend to believe in diversification in their equities allocation and yet not when it comes to real estate,” said Schroders product manager Andrew Robbens. Good point, I thought to myself – before later taking advantage of the Q&A to check what discount the Schroder Global Real Estate Securities Trust was on.
Thinking back, it was actually fairly early on in the two events that I began to worry my usual mind-set had changed. This was as I found myself acknowledging Legg Mason investment director Richard Gillham had actively addressed a major concern of mine about the area of my portfolio that, despite my discipline of always aiming to invest for the longer term, I have recently thought about, ahem, taking profits.
“The case for the US is no longer based on cheap valuations,” he suggested. “Indeed, the market is now right in line with long-term average multiples. So growth will not come from an expansion in multiples so much as a reacceleration in certain areas of corporate earnings. It is now the ‘E’ part of the P/E ratio than can drive growth forward in the US.”
Now, four weeks on and two-thirds of the way through my self-imposed cooling-off period, I have had time to reflect and try and make sense of my apparent desire to buy any portfolio that does not have a bond in it. My conclusion is it is not just me and I am merely symptomatic of a wider positivity among investors towards equity markets. Nothing bubbly or even very bullish – yet – but certainly a less frosty attitude than it has been.
That would suggest we have notched up another stage in the endless cycle of investor emotions that takes in greed and fear, exuberance and panic, and all points in between, over and over again. Hope perhaps – maybe even relief? Not the best time to be persuaded by the case for equities then but certainly by no means the worst and, from my personal perspective, all wholly hypothetical since I find myself sadly short of money to invest.