280. Seven fund managers, just ten minutes, what would you ask them?

30 September 2023 (pre-recorded 19 September 2023)

Below is a transcript of the episode, modified for your reading pleasure. Please check the corresponding audio before quoting in print, as it may contain small errors. Please remember we’ve been discussing individual companies to bring investing to life for you. It’s not a recommendation to buy or sell. The fund may or may not still hold these companies at your time of listening. For more information on the people and ideas in the episode, see the links at the bottom of the post.

[NTRODUCTION]

Staci West (SW): Welcome back to the ‘Investing on the go’ podcast brought to you by FundCalibre. In a special bonus episode for International Podcast Day [Saturday, 30th September], we’re taking you behind the scenes at one of FundCalibre’s most popular events — speed dating.

Although held in a beautifully lit room and conversations held one to one, romance wasn’t on the cards. Instead, we invited seven journalists to spend ten minutes interviewing seven fund managers. While the journalists concentrated on getting the news, I took a more light-hearted approach with my allotted time.

For starters, I took to Google to find out the most commonly asked questions at speed dating events around the world — and then gave them a bit of a twist. The following answers were recorded in a busy and energetic room, as one might imagine from speed dating, so please forgive the chatter and laughs in the background, but we were having a good night. So, let’s jump in!

[INTERVIEW]

SW: Google suggested I start by getting to know a bit more about my ‘date’, so I wanted to know how they ended up in fund management. What series of events from their past led them to me, at a fund manager speed dating event? Let’s start with my favourite answer of the night from Alec Cutler, manager of Orbis Global Balanced fund.

Alec Cutler (AC): My grandmother taught me about investing. Anyway, my grandfather had a seat on the New York Stock Exchange. And he died in 1969. And his firm went to my grandmother and said – at the funeral – you know, you’re going to sell Charlie’s seat back to the partners, right? And she said, why would I do that? And they said, well, there’s never been a female owner of a seat at the stock exchange. And she said, well, there is one now! She became an incredible investor and kept that seat in the stock exchange until 1987. [At] the beginning of 1987, when it hit a peak price, she sold it.

But when we were kids in the ‘70s and ‘80s, she was so passionate about investing, she would take us aside and she would always want to talk to us about her stocks and her portfolio. And, of my cousins and brothers, I was the only one who was interested. So, I spent, I don’t know, maybe in my mind, hundreds of hours talking to her.

SW: Alec wasn’t the only guest interested in the world of investing from a young age. Charles Luke, manager of Murray Income Trust and Tom Lemaigre, co-manager of Janus Henderson European Selected Opportunities, also both highlighted an early interest in the field.

Charles Luke (CL): Well, going back a very long time, I was always interested in companies and also current affairs in the stock market. So, when I was – this is quite sad – but when I used to come home from school, and I think it was page 224 or 225 on Teletext, and I’d look at which of the companies that did well on a particular day, and which were the ones [that] had done badly. And that always intrigued me.

And then I was very fortunate to get a job [and] started my career at Framlington. And I think they were interested because I had some knowledge of Japanese and the Japanese economy, but ended up looking at UK equity income shares and, actually, got thrown into the deep end very, very quickly, helped with managing a couple of investment trusts after, you know, less than a year. And basically, [I’ve] carried on doing that ever since.

Tom Lemaigre (TL): So, it all started with a fascination and how to take things apart and put them back together when I was very young. And it sounds clichéd, but actually I did engineering as a degree and that was born out of a love of trying to understand things, and actually that love of understanding things translated into trying to understand what makes companies tick, what makes financial markets tick.

And when I was at university, I thought to myself actually, designing Formula One engines doesn’t sound that fun, because there isn’t a level of uncertainty in there, whereas financial markets keep you guessing. And if there is one thing that unites good fund managers, it’s insecurity – and I think I’ve told you this before – and I’ve got that in shedloads!

And, actually, I like how financial markets keep me on the edge constantly; they keep you doubting yourself. And that is actually the joy and the horror of what we do for a living, is if you get things right more than 50% of the time, you are actually doing quite a good job. And so, it is an addiction that was fostered from a fairly young age of 1) trying to understand how things work, and 2) this fascination with uncertainty.

SW: While some have a long-standing passion, it’s more likely a career you “fall into” according to the next few managers, starting with two multi-asset managers: Peter Michaelis, co-manager of Liontrust Sustainable Future Managed fund and Paul Flood, manager of BNY Mellon Multi-Asset Income.

Peter Michaelis (PM): I did a PhD in environmental economics. So, and I have to admit fund management was not what I was thinking, this is what I’m going to do after my PhD. In fact, I worked for the steel industry, basically as an environmental consultant working out the environmental attributes of steel. And I was doing that, but I was thinking, okay, this isn’t really going places. And then a friend of a friend said, okay, look, there’s someone who’s looking for someone to do environmental analysis in this funny place called The City. And I went and I was lucky enough to get a [job as] maternity cover – it was a maternity cover for three months – which was at Henderson on their sustainable investment team. And I ended up staying 22 years.

Paul Flood (PF): I worked kind of just by chance at Newton when I left school. And then went on to University after spending a year working. And I went to University of St. Andrews to study astrophysics because they had a great astronomy department at the time. And then came out in 2003 and just happened to go back to Newton to temp – so, I was doing a temping job. And just happened to fall back into doing the same job I’d done before, because the people I worked with knew me and said, come back and work for us. I said, well, I’m not going to do that because obviously I’ve just done a degree. And they said, well just come back and temp for a while until you find a permanent job, and the rest is kind of history; I kind of stayed at Newton the whole time.

SW: And Praveen Kumar, manager of the Baillie Gifford Shin Nippon Trust, tells me about his change of careers.

Praveen Kumar (PK): So, I’m originally from India [where] I was a software developer. I did that for a few years, and then I moved to management consulting, I did that for another 5-6 years. And then I took a year off to do my MBA from Cambridge. So, it was a 1-year full-time MBA. And after that I joined Baillie Gifford in 2008. And one of my brother-in-laws is basically a fund manager with Fidelity. So, he runs Indian equities in India for Fidelity, so, he was like my mentor really. So that got me hooked into researching companies and investing in stocks. So, that was the seed, the idea of moving into fund management.

SW: And what better way to get to know someone than by finding out what sets them apart from the rest. Here’s a few of my favourite answers…

CL: ‘Anxious vigilance.’ Some people say glass half full, but I like anxious vigilance.

PK: So, I think one of the things that I’m always fascinated by is people always tend to overcomplicate fund management and research. And this is a type of job where you can make things as complicated as you want. I think people have this notion that the more complicated you sound, the more complex words you use, the more credibility you have, [then] people actually think, oh, this person knows what he or she is talking about. I tend to take the opposite view.

I try and keep things very, very simple, dumbing things down to the actual core. I suppose the thing that I try and bring and to my mentees or, you know, whoever, some junior investors, I always say, try to take a step back and think, and just stick to the basics. You know, don’t over-complicate things. Try and work out what are the one or two or three things that are really important for the long-term share price performance of this company.

TL: Well, it’s twofold, isn’t it? I think analytical ability. And insecurity. But what I would throw in there as well is, I think that people oftentimes forget that we spend a lot of time looking at financials of companies and modelling and spreadsheets and asking about numbers and what growth rates look like and margins and what’s the balance sheet like… But actually, companies are run by people. And so, the other thing you need as a fund manager, is you need to be able to read people and to understand their conviction levels in their strategy in a company. Because when you invest in a company, you are also technically investing in them. Much like when investors invest in our fund, they aren’t just investing in our analytical ability, they’re also investing in us.

SW: Next up, as per Google’s recommendation, I asked them to describe themselves in three words. But again, we’re talking investment funds here, so I challenged them to describe their investment approach instead! We start with Charlotte Ryland, manager of the CCLA Better World Global Equity fund.

Charlotte Ryland (CR): One would be quality. One would be sustainable. So, which doesn’t mean excluding everything, but it does mean make sure that’s a business model that’s on the right side of the chain. And the third would be something that is going to grow. And it doesn’t mean you have to buy growth stocks, but it does mean you have to have businesses that are going to be bigger in 5 /10 years’ time than they’re today.

AC: Well-structured. I’ll say patient – because we have a 3 to 5-year time horizon. Whereas most manager groups would have about a six month to one year time horizon. And contrarian value oriented.

PF: Flexible. Forward-looking thematic process, and valuation conscious. So thematic, fundamental bottom-up security selection. So, it’s really important to us [that] investment decisions are made by the portfolio manager; we don’t outsource our equity or bond fund allocations to other fund management teams. That’s to ensure we’ve got full holistic understanding of the risk. I think we’re very valuation conscious; whilst we want that thematic support of structural growth, the themes tend to lead us towards more structural growth areas. We want to get that growth at an attractive valuation. We want to overpay for the growth bias within that.

PK: So, one definitely is growth. I think the world is a better place only because of growth companies, you know, the course of history of mankind. And if we hadn’t had growth companies, we’d still be in the stone age, <laugh>. So, just the growth mindset.

I think the second thing that sort of defines my investment style is just reading between the lines. So, that would be kind of the second – [having and using a] diversity of ideas as sources.

I think the third word is to be bold. I think with this kind of growth investing, there’s no place for you to hide. So, I suppose growth, a growth mindset, being bold, the decision making and being versatile.

SW: Three fund managers actually managed to come up with a slogan on the spot, which was very impressive.

PM: Well, ‘Growth for good’ would be my catchphrase.

CL: Dependable, diversified, and differentiated. So, dependable is the focus on good quality companies benefiting from the strength of the team; [our] patient ‘buy and hold’ investment approach. Diversified is not having all your eggs in one basket. And then differentiated is – particularly in this sector – is the focus on good quality companies, diversification, mid-cap, overseas holdings, little bit of option income, and particularly ESG focus – so, ESG is really important. And, typically, the fund tends to do well when the market goes down, tends to outperform. And it sort of generally keeps up when the market goes up.

TL: Pragmatic, all-weather. Because, independent of any market cycle, we should be generating alpha for you. We are not out-and-out growth investors. We are not deep value investors. Whatever the prevailing wind is, we want to ensure that we keep clients in the game and we’re always generating alpha.

And I never, ever, ever, ever, want to have the excuse to a client, if they come back to me in three years’ time after their investment, and say, I’m sorry this was a value market, I underperformed, or, this was a growth market, I underperformed. Because I do genuinely believe the next ten years suit our investment style better, so valuation consciousness, being pragmatic.

SW: I went a little rogue for the next one — don’t tell Google! — but I wanted to know if they could only tell me one highlight from their career, what would it be?

CR: I mean, the moments that stick out tend to be the sort of traumatic moments! So, I mean, I’ve had the Asian financial crisis, I’ve had the dot.com bubble, I’ve had the GFC, I’ve had a global pandemic. So, I mean, does that tend to stick in my mind more than the good things?!

I think, you know, in terms of finding some great companies that you hold on to for years and years and years. So, you know, whether that be ARM [Holdings] back in the late ‘90s, or Apple when it became, you know, the iPhone, etc. etc.. [Or] Adobe as it transformed into the SaaS [Software as a Service] model, whether it be …  there are some great companies that you find, and you can hold them for decades and [they] continue to produce good returns. And that can equally be a tech thing. And it can equally be something like a dull and boring like a Relx or something. But actually, they continue to compound those returns up and be great investments.

SW: The self-reflection wasn’t all challenges though – we have two great success stories from our managers.

CL: End of 2018, I wrote a stock note on a company called NMC Health. And NMC Health at the time was the darling of the stock market and everyone loved it, and it [had] just entered the FTSE 100. And I spent a lot of time looking at the governance of the company and reading the annual report, a lot of time on Companies House and I saw a lot of red flags in the business that other people seemingly weren’t interested in or didn’t see. And particularly around the audit committee. And a lot of things that were very, very, very concerning that everyone had missed.

And I put a sell recommendation on the company internally. And it was difficult because, you know, you’ve got to justify your position to your colleagues. But I think I did that, I did an awful lot of work. I met with the directors. Unfortunately, we had a very large position that was a lot smaller position by the end of the investigation of the note. And it came to pass that there was a huge financial fraud in the business and it’s now worth zero. And the audit committee and the independence of the audit committee and having the right people in that audit committee may or may not have discovered that, or may have made that less likely to have happened. So, the highlight of what I really remember is, is writing that note and spending a lot of time on NMC Health.

PM: I would point to one period, actually, it was quite early, it was in the early 2000s and it was a story where we worked with pharmaceutical companies. And at the time pharmaceutical companies – and you can barely believe it – they were taking the South African government to court because the South African government were importing generic HIV treatment drugs from India. And the pharmaceutical companies were saying, this is breaching intellectual property rights, we’re going to take you to court. And we, alongside other sustainable investors, and NGOs like Oxfam, went to companies like GlaxoSmithKline, we said, ‘You’re out of your mind? You know, the moral case is so weak here, you’re going to do yourself so much more damage than the negligible profits you make out of drugs in South Africa.’ And there was quite a lot of engagement work that my team did that led actually to Glaxo flipping it around, and now they’re one of the leaders in terms of access to management. And so, I think that’s one of the powers of sustainable investing is that we can show companies that there are more stakeholders than just, you know, the shorter-term shareholders.

PK: So, one of the things which encapsulates this kind of growth, flexibility, and boldness [approach] is interestingly a stock idea on which I spent literally 30 minutes <laugh> because the investment case was so straightforward. I mean, I could’ve easily spent two weeks. Typically, with every single stock that I look at, I always, 99.9% of the time always have a call with management or try and see them in Japan. Without that, I very rarely buy a stock. With this particular stock, I had a look at it quickly, read through the history, spent half an hour and then went and had a chat with Sarah Whitley, who was the head of our department, a partner at the firm [until] she retired a few years ago, and said, actually, you know what? This looks a pretty straightforward investment case. Do you think I’m missing something? She said, actually no, if you feel like it, you know, then go for it. So, that was an investment case made in half an hour. And from the point of investing, we still own it. It’s a company called Noritsu Koki [co., Ltd.] So, we owned it for like five, six years. I think it’s been a four or a five bagger.

So, that was something that kind of sticks in my mind in terms of you know, just being bold, backing your own judgment and not spending too much time doing research. I mean the danger in our profession is you can talk yourself out of a perfectly good idea. So, you’ve got to have that ability to draw a line at a certain point and say, look, I think I know enough to make a decision, and just let’s get on with it.

SW: Those are the types of stories that make you want to be a fund manager. But, I moved on, and per Google’s suggestion, I finished our time with a ‘fun’ question — although fun is questionable — I asked the managers for their parting words of wisdom. If they could give one piece of advice to someone just starting their investment journey, what would it be?

PK: I mean, if someone’s investing their own money, I think two very, very important things to bear in mind before you actually put your money anywhere is, firstly, what are you hoping to gain out of it? What are you investing for? What’s your purpose of investing? Are you just doing it for a bit of fun? Are you doing it for a bit of a laugh? Are you doing it actually to build some wealth to say, I don’t know, put down a deposit on a house, as in when you get to the stage you want to buy it? So, being absolutely clear in your mind, what is the purpose.

PM: Patience and be interested in it. I think that’s the key. Yes, there are a lot of very intelligent people out there, and if they spend a couple of hours, they can really get up to speed with how investment works. But patience is absolutely critical if you’re going to take advantage of compounding. And I think that’d be my one thing. Avoid the get rich quick schemes and the stories of people who’ve made gazillions in 6 months.

CR: I would probably say don’t go for the quick win; the, if-it-goes-well-it-goes-up-500% and-if-it-doesn’t-it-goes-bust. You know, it is much better to go with slow and steady, you know, the tortoise, if we like in that analogy, for businesses that you can steadily compound up for you and you’ll be better off with those in the long-term than trying to go for the quick win. There’s nothing wrong with being boring is what I’d probably say!

SW: And let’s finish how we started, with a personal anecdote from Alec Cutler, who tells me how he talks to his own kids about money.

AC: Learning about investing is learning about your financial health. Everyone is really into their physical health and being healthier and eating better. But what about your financial health? What about when you, how are you going to know when to retire? And are you going to be able to retire? This stuff’s really important. And too many people hand it off in an uneducated way to people who aren’t prepared to take it from them. And it doesn’t matter whether you use an advisor or you’re making your own stock decisions, you still need to know how this stuff works in order to make an educated decision.

So, I’ve inculcated both my kids with that. They both had to read, by the time they were 18, they had to read Investing for Dummies. And I gave each one of them an oral board.

SW: For those of you not familiar with an oral board, it’s an oral exam that you would have to pass to be a Dr or complete your PhD. I don’t know about you, but an oral board from my father sounds like a nightmare!  But there you have it, speed dating with seven fund managers. To learn more about all the managers featured, and their funds, please visit FundCalibre.com — and don’t forget to subscribe to the ‘Investing on the go’ podcast, available wherever you get your podcasts.

Please remember, we’ve been discussing individual companies to bring investing to life for you. It’s not a recommendation to buy or sell. The fund may or may not still hold these companies at the time of listening. Elite Ratings are based on FundCalibre’s research methodology and are the opinion of FundCalibre’s research team only.