What are your thoughts on reaching 40 years as an investment company manager?
Peter Spiller, Manager of Capital Gearing, said: “How much is different and how much the same. Equity and bond valuations were extraordinarily attractive in 1982 and the opposite is true now. Inflation was central to investors’ thoughts then, had a long period of quiescence with helpful demographics, technology and especially globalisation, and now looms large once again.
“We have always found great opportunity in investment trusts. They have outperformed and developed over the 40 years. Then exchange controls had disappeared shortly before and discounts were large. Essentially all the underlying investments were equities. Now a wide range of asset classes is available and discounts have been voluntary for over 20 years as a result of the ability to buy back shares. The opportunity for growth has visibly increased, although the willingness of some boards, notably of equity trusts, to embrace expansion has been patchy.
“The negative factor for trusts has been the regulatory changes that have had the unintended consequences of reducing liquidity and endangering the viability of many equity trusts. But there are solutions and the next 40 years will, I hope, see equity trusts increase their market share against open-ended funds as their relative performance deserves. The pace of that change depends on boards becoming more ambitious to build on past success. I consider myself very fortunate that trusts have proved excellent vehicles for equity investment throughout the years since 1982.”
What has been your approach during difficult times such as the pandemic, previous wars and recessions?
Peter Spiller, Manager of Capital Gearing, said: “Our asset allocation has always been driven by value; when prospective returns are good and risks low then duration should be long and the reverse is also true. So, for example in the late 1990s the S&P 500 as a whole looked very richly priced, but bonds offered extraordinary value, so we owned a lot, with proper duration and that served us well in the crash of 2000. Similarly, in 2019 and January 2020 renewable energy stocks were bid up to frothy levels, so we sold them all and went into the Covid crash with an exposure to risk assets of around 30%. We were therefore able to buy equities and property as value improved and raised the risk assets to about 50%. Valuation of markets as a whole never got down to compelling levels as a result of massive central bank support which is why the risk assets were not higher. With inflation where it is, such support cannot be relied upon now.”
Other long-serving managers on lessons learned and mistakes made
James Henderson, Manager of Lowland Investment Company, said: “It is never as good as it looks and it is never as bad as it looks. Therefore, don’t get depressed when things are going badly and get concerned when it looks like things are going well.”
Georgina Brittain, Manager of JPMorgan UK Smaller Companies, said: “Every day as a fund manager is about learning. But probably the most important lesson I have learnt in my long career is to run my winners. I have bought a number of little small cap companies and benefited from their rise all the way into the FTSE 100. Successes like that do not come along often but have made a crucial difference to the long-term outperformance of the trust. Along the way there have of course been mistakes, but one that stands out is buying into a theme, rather than a company. No matter how correct the thesis might be, a company will only outperform if it delivers on its results.”
Julian Cane, Manager of BMO Capital & Income, said: “All investment managers make mistakes; it’s impossible not to as the future is unknowable. The goal has to be to learn from not only our mistakes, but also those of our peers and forebears. The biggest mistakes have been when I’ve strayed outside of my (and my team’s) areas of competence. Investing in strongly profitable businesses with robust balance sheets is unlikely to be a big mistake (although price is important); investing in poorly capitalised businesses with weak profitability can give spectacular returns if the businesses turn around, but that’s a tougher call and may well end in capital destruction.
