Growing up in Canada, I had the opportunity to play a number of different sports; from baseball to ball hockey, basketball and soccer. If anyone has ever played team sports they can relate to how important working together and strategy are to winning. The process of planning a strategy, to take account of your teammates’ strengths and weaknesses, for them to fulfil their roles, and executing it all perfectly is truly one of the most fulfilling experiences.
Unfortunately for me, several injuries and life in general have rendered me now to only one sport, chasing a golf ball. Working in the investment industry, you wouldn't find it surprising that much of my life experiences growing up have shaped my own personal investment philosophy.
A team sport and multi-asset investing have a lot more in common than you think. In investments we have an investment manager, an investment strategy, and instruments to execute the strategy. While in sports we have a coach, a playbook, and players who will work together as a team.
Just like in sports, there are many different ways to win, likewise for the investment world where my view of winning is simply out performing your peers whilst meeting your client objectives. The beauty about being exposed to Multi-Manager research and portfolio construction early on in my career is that I was able to see how so many multiple investment managers manage money. Many were successful and some were absolutely terrible; the key differentiator between being successful and not is the ability to consistently execute your game plan, while adapting the strategy as the dynamics of the game change. The lesson was clear, stick to the process and the outcomes should take care of themselves.
So with this background, let's dig a little deeper. Like I said, there are many ways to play this game, I am simply sharing with you what works for me and aid you in your own thinking.
If I am the coach, my coaching staff would be my team around me, they provide the critical inputs to help build the appropriate investment playbook for our strategy and select the right players to put out on the field. The role of the coach is extremely important; during times of uncertainty or immense market noise (China/Brexit/US Political elections) they must cut out the noise and stick to their core principles. I've seen some amazing American Football games which were won by a coach’s sheer brilliance of outcoaching the other team!
Our playbook (investment strategy) consists of a number of big macro themes and investment opportunities that we believe will be critical to delivering attractive risk adjusted returns by avoiding big risks ahead. The way we manage money is to identify three to four big themes which we further break down into specific sub themes. This is extremely important, it helps us to formulate an overall investment strategy based on what is being presented to us and consequently specify which plays are going to bring success. Most importantly, it allows us to have a clear strategic focus. That said, just like in sports the dynamics of the game change; changes in the weather or changes in the look the other team gives you, force you to re-evaluate your current strategy. More often than not, we will adapt our investment strategy and consequently may decide to emphasise certain plays in our playbook more than others. Being dogmatic and not adapting to the situation when required is a recipe for disaster.
Last but not least, we need to execute our strategy. This all comes down to having the right players, in the right roles, working in harmony to successfully win the game. You can't stack a team with superstar overpriced players and expect them to be successful as a team: it doesn't work that way. Team chemistry and how these players interact is important, just look at Manchester United. The investment world is no different, too many are fascinated with stacking their portfolios with the next hottest fund manager without taking into account what this manager will bring to the table, how it will blend with the other elements, was the manager’s performance commensurate with their investment style etc.? For me it is about identifying the right instrument, understanding exactly how it behaves and therefore when we use it in the portfolio it does exactly what it is supposed to do. We also have instruments sitting on our bench; these are the team members who we don't need at the moment but will be called upon in the future depending on what the game plan is.
Our own portfolios tend to be quite concentrated with many high conviction positions. We invest with conviction as this reflects the confidence we have in a given strategy. Fewer positions means fewer moving parts, and we know exactly which role each position plays. We can therefore structure our clients’ portfolios for the game ahead.