Sometimes our views on markets and those of the managers we used would diverge over time. This was uncomfortable and meant having to find a replacement. Not being close enough to the coalface was also frustrating – you are a step removed from the underlying companies which makes it harder to fully understand all the risks you are taking.
By 2015, our internal research team had grown to the point where I believed we could move to direct investing: analysing and buying the underlying assets ourselves. So I went back to multi-asset investing.
Clearly, this has taken out a layer of cost, making the funds cheaper, but I think the most valuable change is that my hands are firmly on the investment levers instead of being one or two steps removed.
I can see exactly what is going on with my portfolios on a live basis, where before the value changes of funds would take days toflow through.
Investing directly means I am meeting the management teams of those companies my clients are exposed to. I can establish the factors that I care about most and invest according to them. For me, they are high return on equity, low debt and strong recurring cash flow.
Multi-asset investing also allows me to be sure exactly what I am buying and why.
In a global, interconnected marketplace it makes more sense for us to invest in companies from a bottom-up perspective – that is, because we think it is a great business – as opposed to trying to get exposure to strong economic regions. Just because a company is based in Europe, does not mean that it is a punchy call in a troubled area. In today’s world many companies are global endeavours that just happen to be listed in a certain country.
These businesses borrow in several different countries with differing interest rates and get paid and make payments in various currencies and markets.
They are much more sensitive to the fortunes of their particular industry worldwide, their technology and their own balance sheets. Picking regions has become much less appropriate over the past decade. But at the end of the day, we are total pragmatists. We still use a small number of funds in our multi-asset portfolios for those opportunities or areas that we believe someone else has an edge.
We are not afraid to delegate to the experts and pay a little extra. For example, in places like Japan, where the language and culture can be a roadblock. Or perhaps niche credit markets and property investments.
Anything that helps us express our views in a purer way is welcome, because we believe that is the key to strong risk-adjusted returns.