I’ve never compared multi-managers to football managers – but PPS Investment’s David Crosoer has. His findings make for an interesting read.
Saving for one’s retirement is a long-term endeavour that typically spans decades of one’s working life. Despite this, investors can often become caught up in daily news flow and concerned with short-term volatility. It is particularly important at such times to focus on one’s long-term goals and stick to one’s investment plan. All too often, investors react to what’s happening in the moment, to the detriment of achieving their long-term objectives.
Just as a professional sportsperson is unlikely to succeed with the penalty or conversion of the goal if he listened to the baying crowd while taking the kick, so an investor is unlikely to succeed with an investment strategy by reacting to idle talk around the braai or to every article in the newspaper.
What then makes a professional sportsperson successful? Of course, there is the latent talent and hours of practice. And sometimes a dose of luck too. But there is also the ability to block out extraneous factors, focus just on the goal, and go through a well-drilled routine. Importantly, professional sportspeople face not just one penalty in their careers, but might be required to take penalties in every game. They will therefore need a systematic approach that minimises the risk of something going wrong in taking all these penalty goals.
Successfully saving for one’s retirement requires similar focus and dedication. Investors need to adopt an approach that minimises the risk of something going wrong and remain consistent in their decision-making to have the best chance of success. Sounds daunting? It need not be.
Investors can outsource the investment decision-making to professional asset managers who themselves follow carefully crafted processes to maximise their own chances of success. These asset managers tend to specialise in certain areas (to continue with the football analogy, some are better at left-back and some better in the midfield, for example), and have different types of strengths (and weaknesses). In utilising these managers in a portfolio, one would want to play to their strengths.
How though do investors determine what strengths asset managers have, or how to combine them in a portfolio? Again, investors can delegate this decision to a professional ‘football manager’ or do the combination themselves. Our PPS funds for example are all multi-managed portfolios in which we do the selection of the underlying managers on behalf of the investor. And just like a successful football manager combines footballers of different strengths to form a more complete whole, so our multi-manager portfolios are sensibly constructed across different asset managers to give us the best chance of success.
Managing a football team or investment portfolio might sound glamourous, but it requires discipline and dedication to be successful over time. While it might be possible to pull off success in a single year without a repeatable process, it is much harder to consistently achieve this every year without one.
Of course, a multi-manager will not always get everything right, just as a professional footballer may miss a penalty or a football manager may select the wrong team for a particularly match. But just as a good football manager will make the necessary changes to his team to ensure he maximises his chance of success, so multi-manager portfolios are adjusted where necessary to perform robustly, whatever the future might hold.
A robust investment process at times can mean going against the crowd, for example by including asset managers that are increasingly excited about taking advantage of the more attractive opportunities locally, despite the negative short-term sentiment. This non-consensus trade requires patience to persist with, especially when markets are volatile, and a clear understanding of the asset manager’s strategy, which can be gained by regularly engaging one-on-one with the asset manager concerned, and analysing their portfolios in considerable detail.
Saving for one’s retirement can sometimes feel like needing to compete in the English Premier League every year for the next 40 years. The environment is competitive, and each New Year promises fresh challenges. There is help at hand. Employing a multi-manager can help you construct disciplined robust portfolios, and give you a better chance of remaining competitive each year.