High-conviction, high-alpha managers do very well in changing environments

A conviction investor, the company's fund managers thrive on "dispersion" in the stock market and the chance to prove the value of active investing.

Altinger says: "Things are surfacing more — what that means in terms of active equities from a performance standpoint, I remain quite optimistic because we have a number of high-conviction, high-alpha fund managers and we do very well whenever the environment changes. That kind of environment bodes well for active managers.

"It's more difficult for us if you don't have much dispersion. What you don't want if you're active, you don't want to have low dispersion, such as within sector classes, you don't want a [period] like that we've just passed through where it's all about capturing beta."

JO Hambro is a high-conviction, high-alpha type of fund manager, with global and UK funds. Its Global Select Fund is £1.18bn in size and has returned 27 per cent over the past five years, although its benchmark has delivered 49 per cent — however, there was a strong period of outperformance from 2020 to 2022.

But JO Hambro's commitment to high-conviction and high-alpha strategies means its funds may not be to the tastes of all retail investors; its relationships with financial advisers are crucial. 

Altinger says: "We have a very strong footprint with intermediaries — they will take our strategies and sell into the end client." It is important that the business develops its footprint in the UK, she adds.

But retail investors have their limits in relation to what a conviction fund manager is able to do. 

We have a very strong footprint with intermediaries — they will take our strategies and sell into the end client

"Retail investors have a reputation of investing in strategies that have just gone through a really strong period of performance. We tend to see retail clients look at past performance — often, it tends to be that retail chases performance," she explains.

"Institutional clients tend to be more sophisticated. So institutional clients might look for entry points, looking for exposure when the strategy is in its trough. No manager can always outperform year after year, there's always going to be a cycle. But institutional tend to look through the performance cycle and decide it might be a good point for them to come in." 

As a consequence, Altinger is planning to market more of the company's strategies to the institutional market, to counteract the prevarications of retail.

"The types of products we have, some of them are deep-conviction value funds that tend to have tracking errors. They outperform really strongly, but when they underperform, they underperform strongly," she says.

"It comes down to the client or clients' overall risk appetite — we might say the retail investor has less risk appetite than institutional investors that are investing for five years or seven years. If I think what we do really well, do they lend themselves more to an institutional client base?"

She is also looking to expand the business outside the UK as well as the institutional market. "I don't think we've reached capacity in the UK — if you look at market share you can still grow in the UK. It's more a question of diversifying our client base and client channel and thinking about the investment strategies," she says.

But in terms of UK retail investors, there are other, more logistical challenges that UK fund managers are facing: the power of the platforms.

Altinger says: "The way we need to engage with platforms has had to evolve. It's not just about the best-performing funds, it's about really understanding each of the firms' clients we work with, and where is the value proposition to the end client. What role do we [as fund managers] need to play for their proposition."

"This means, for example, thinking about what kind of building block they are providing for which type of portfolio, ranging from aggressive to conservative.

"What's the expectation? What's the return expectation across different market environments? How do we help advisers position the fund — if it's been positioned as a single fund, how do we give them the tools to talk about it effectively to help them understand how it captures value?"

In addition, there is greater pressure to be more transparent about holdings, and to deliver real-time information to the client, especially when holdings change, assisted by an improved technological interface. 

"As a mid-sized firm, that's a challenge. The big companies are years ahead in terms of technological interface," she says.

"There's this idea that if the market environment changes suddenly, that end clients will be able to see [that their] portfolio has changed. I think that's one of the challenges for us.

"It's the desire to have a little bit more control and oversight, it's not just having [more] data. We saw the Woodford debacle play out, and that was all about liquidity risk management. A lot of clients wanted to have more oversight: what do we have in that fund? What's my money invested in? Would I be in a position not being able to redeem?"

The way we need to engage with platforms has had to evolve. It's not just about the best-performing funds, it's about really understanding each of the firms' clients we work with, and where is the value proposition to the end client

Altinger has been running JO Hambro for three years, having previously run a multi-family office. Half Italian and half German, she has been in financial services her entire career.

She is also one of the few female bosses of a mid to large fund manager. "People are still adapting to women in leadership roles. We don't have that many women as CEOs of large asset management firms — it's still the exception rather than something that goes unnoticed," she says..

"A lot of it is generational. I think the younger generation approach it in a more open manner, I don't think they look at leadership through the gender lens in the way that we have had to. Maybe there's sufficient role models that they have seen different styles of leading, they don't map those skills to particular genders.

"At the beginning [of my career], I was very aware of the expectation to lead in a more conventional way — very assertive, extrovert, a highly confident, articulate leadership style, which is very masculine. The pandemic has changed some of that."

Now there is wider acceptance of more "people-centred" leadership, she says. "It would be good to think of empathetic leadership styles without thinking whether they're a man or a woman; but the younger generation are more agnostic."

Melanie Tringham is features editor of FTAdviser