After a few relaxing weeks of the southern hemisphere summer, I had time to reflect on markets and the business of multi-asset wealth management. Over a quiet glass or two of Elephant Hills Shiraz, I came across a fascinating article in a mid-December London edition of The Times, written by the Financial Editor Patrick Hosking, “Trusts should beware throwing out the baby with the bathwater”. (The article goes on to talk about the two very different approaches taken by the Wellcome Trust and Alliance Trust, two of the largest investment trusts, so well worth a read.)
About ten years ago, the boss of a flourishing hedge fund management business once told me that he was the most overpaid nanny in the world. The hedge fund managers, who worked for his firm, he said, were like a bunch of children who needed constant attention and discipline!
Underlying fund managers are important when picking stocks, bonds or properties. They tend to be brainy and curious, whilst the good ones also manage to combine conviction with humility somehow. They need to be stubborn enough to stick to their beliefs in the face of bubbles and panics, yet humble enough to recognise when they are wrong and need to adapt. They can be dysfunctional, arrogant (when performance is good), despondent (when performance is not so good) and, on occasion, downright infantile. Hence the nanny reference came to mind.
At MitonOptimal we look to model Strategic Asset Allocation, Tactical Tilting of asset classes and blending the best of active manager talent (with passive indexation when appropriate) to build portfolios for intermediaries and their clients. We have spent over 20 years analysing, researching and sorting the “wheat from the chaff” of these nannies and their sometimes “infantile” fund managers. Each year, the process starts again, as past performance is no guarantee of future performance. We also have our own in-house talent to manage and this business, too, can punish anyone who becomes complacent.
One of the larger issues facing our Strategic Asset Allocation meeting at the end of the month is the future direction of the US dollar versus its major trading partners, along with investor flows into US equities and bonds. The above chart highlights how popular bonds have been since 2010 and how unpopular US equity funds have been, regardless of their nannies or behaviour. Also, being contrarian hasn’t helped up until now.
We will continue to monitor the markets closely and make strategic changes to our asset allocation as and when appropriate.Overpaid Nannies