The biggest handbrake on managers is running too much money
In turbulent financial conditions, when a high number of fund managers struggle on a daily basis to beat their benchmark, Simon Brazier, head of UK equities at Threadneedle, tries to remain unfazed, preferring these types of markets to quieter and more predictable times.
“I get many people coming to me at the moment and saying, ‘Simon, it must be difficult as a fund manager with these high levels of volatility and the high correlations in markets’. That’s utter rubbish. We’re in an environment at the moment where, yes, correlations are high, but actually it’s a great time for active stockpickers,” he says.
“The levels of volatility we are seeing are normal. Clients are going to have to get used to this. All we’re doing as a team is being very clear about the long-term valuation of a company and using the volatility in the market to exploit this.”
Mr Brazier has the numbers to back this up. He claims that thanks to the ‘magic three Ps’ – people, product and process - the fourth P, performance, has followed suit. All of the nine vehicles that his team run are in the first quartile of their peer group over one year to the end of July 2012, and all but two are also first quartile over five years.
“We’ve delivered strong numbers across the team, both on the short-term and long-term [percentages]. It’s not about if my fund was first quartile last month. It’s about whether we deliver long-term, constant, repeatable and sustainable performance,” he says.
The track record of good performance has already been noticed by investors, with the UK equities team seeing £2.5bn of inflows across the range in the past three years.
“More and more people realise that they’re investing for their retirement, so they want to invest their money with people who can give them market-plus performance in a consistent, risk-adjusted, repeatable way,” he says.
Mr Brazier says that the group’s process plays a large part in delivering returns. The Threadneedle equities team takes a long-term approach to investing, meeting more than 1,000 companies a year, as well as screening companies on both qualitative and quantitative metrics.
“We have always taken a three-year view on our investment horizon. We try and work out what companies are worth and then do significant, detailed in-house investment research. The turnover on our funds, across the £14bn we run, was less than 25 per cent last year, suggesting more than a four-year time horizon,” he says.
“We’re not a house that says, ‘We’re going to promote Simon Brazier today because he happens to have good numbers’. We’re really on the front foot as a team, going out there and saying, ‘If you want to buy mid-cap, income, absolute return or an offshore alpha strategy, we can give it to you and deliver strong returns because we’ve got the people and the process in place to serve your needs,’” he adds.