“Having a rigorous investment process to help drive stock selection is essential. When times are more difficult it provides a framework to revisit why we have invested in some companies and importantly to separate noise (the sometimes volatile share price) from the signal (are the company’s prospects better or worse than previously?) The process helps to drive better decision making initially and also to catch mistakes at an early stage.”
The most challenging moments
Georgina Brittain, Manager of JPMorgan UK Smaller Companies, said: “There have been many challenging moments in my career: the tech boom and bust, the global financial crisis (GFC), and then of course more recently Covid-19. During the precipitous collapse in stock markets at the onset of the pandemic, I called upon my earlier experiences and learnings during the GFC. Most important was that by the time markets are falling, it is far too late to panic; such market declines offer an opportunity to buy more of the long-held, long-term winners in the trust, and this is what I did. Difficult to do at the time, but definitely beneficial to performance over the longer term.”
James Henderson, Manager of Lowland Investment Company, said: “When your approach is out of favour it is always difficult. The most extreme example of this was in the tech boom of the late 1990s when it was not just that the valuation of the favoured tech companies went up but everything else was sold down to finance the purchases. It was more extreme than now as there is currently more breadth in the market. Like all difficult periods you need to try and keep explaining even if people are a bit fed up with you: don’t hide, keep talking.”
Julian Cane, Manager of BMO Capital & Income, said: “There have been three particularly challenging times. First, our portfolio was heavily invested in higher-yielding value shares during the boom in technology shares in the late 1990s. Performance lagged our benchmark, the board and shareholders were unhappy. Our analysis showed we couldn’t possibly justify the valuations of the tech stocks at that time and helped us to explain our stock selection. Performance rebounded very rapidly when the tech bubble burst in 2000.
“The global financial crisis of 2007 to 2009 was another very difficult period. With hindsight, we had not understood the extent of leverage within the financial system and the repercussions that stemmed from this. This was less a question of our performance being adrift from the market, more a question (particularly around the time of the collapse of Lehman Brothers) as to whether the financial system itself would survive. We took the view international governments and monetary authorities would do everything they could to find a solution. They did, subsequently leading to confidence and markets rebounding.
“The third period is now. The list of negative factors is unprecedented in my working lifetime: a war in Europe, soaring commodity prices and UK inflation at 30-year highs, central banks increasing interest rates and reversing quantitative easing, supply chains and economies still recovering from Covid, and the possibility of the reversal of decades of globalisation as the security and provenance of supplies become much more important. It’s said markets climb a wall of worry, but there’s some serious scaling to be done.”
What advice would you give to your younger self in the role?
Georgina Brittain, Manager of JPMorgan UK Smaller Companies, said: “Make your successes visible. If you really have conviction in your ideas because you have done your work and have the evidence you need, you should feel confident to stick your neck out – that’s what we, as fund managers, do all day every day.”
