Important information: The value of investments and the income from them, can go down as well as up, so you may get back less than you invest.
Be greedy when others are fearful. That’s the Warren Buffett adage we tend to repeat to each other in one guise or another when times look uncertain. And as sensible as it may be, the fear the world is experiencing right now affects more than just the markets. We have a host of other things to be thinking about, not least our health and that of those close to us.
So when I asked my partner if she was concerned about her investments I got quite a cut and dry answer: “No, that’s what I pay the fund managers for.”
And with empty supermarket shelves, school closures and a struggling hospitality sector the newest hurdles for the nation to deal with, maybe now is the time that we should feel comforted by having a professional money manager on hand to share the burden at least in one sense.
On a personal level, I know my emotions are running high and any behavioural economist will tell me that this is when I need to manage that before I even look at my portfolio. I’m sure many others are feeling the same way. If there’s ever a time to stick to the monthly savings plan and leave the decisions to the pros it’s now.
But active management is about much more than making wholesale stock-picking decisions on our behalf. The journey between buying and selling a share requires experienced and cool-headed stewardship, and anyone who has read Lee Freeman-Shor’s The Art of Execution might suggest this is really where active managers earn their crust.
So with that in mind, just how are fund bosses getting through the virus volatility? We visited James Thomson, manager of the Rathbone Global Opportunities Fund, to find out.
Thomson’s style means he is generally prepared to pay up for a company’s shares, where he deems their growth prospects to be consistent and sustainable over the long term. At times like this, the manager’s approach means he is much more likely to look for companies brought down with the crowd, perhaps unfairly, than seek out lowly-valued firms in need of a strategic turnaround.
Along the same lines of seeking steady growth but with a bit more price-sensitivity, I recently spoke to Julian Fosh, co-manager of the Liontrust UK Growth Fund, a member of the Select 50. Like Thomson, he emphasised the need to look for companies in established sectors but with something different to offer than the rest. You can watch my full interview with him here.
Alternatively, the current market swings might just be an opportunity for value-focused managers to snap up businesses hit hard by the virus. Where the broader market has shunned businesses directly affected by the outbreak, contrarian managers might focus on the temporary nature of what’s happening, and the subsequent hopeful return to normal for shares once it’s all over.
Nitin Bajaj runs the Fidelity Asian Values investment trust, with a clear focus on finding value where he can. His recent note highlights another aspect of managing money in tough times - sticking to your knitting. He said: “I continue to have utmost faith in my process. The most time-tested way of investing is to own good businesses, run by competent and honest management teams and to buy them at attractive prices. Avoiding bubbles and unsustainable valuations is key to long-term compounding no matter how painful it is in the short-term. Over time, the quality of businesses and their valuations will matter.”
The team behind Alan Custis’s Lazard UK Omega Fund, another Select 50 constituent, have a similar value-tilt. For a company to make it into the portfolio the manager has to see a minimum of a 20% upside potential in its future, using a variety of valuation techniques to identify these opportunities. Custis argues that having a bank of ideas and only 25- 35 spaces available in the fund means there is no lazy capital floating around - every idea has to constantly justify its inclusion. He’s another manager I spoke to recently, you can watch him tell me more about his process here.
More on Coronavirus and volatility
Important information: Investors should note that the views expressed may no longer be current and may have already been acted upon. Overseas investments will be affected by movements in currency exchange rates. Investments in emerging markets can be more volatile than other more developed markets. Select 50 is not a personal recommendation to buy or sell a fund.This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.