Direct engagement has always been central to diligent stock-picking and no more so than now, says Sid Chand Lall is manager of the IFSL Marlborough Multi Cap Income Fund.
John Kenneth Galbraith, one of the most influential economists of the 20th century, was no fan of meetings. “They are indispensable,” he once said, “when you don’t want to do anything.”
It is not hard to appreciate this sentiment. Most of us have attended our fair share of gatherings geared less towards achieving meaningful outcomes and more towards simply passing the time of day.
Yet some meetings remain extremely useful. In my view, those between fund managers and the companies in which they invest – or in which they might invest – can be among the most productive of all.
This is especially the case today. Direct engagement has always been central to diligent stock-picking, but it is arguably of even greater importance when volatility is widely acknowledged as a “new normal”.
After all, ours is an age in which numerous forces now routinely pull share prices this way and that. Geopolitical tensions, conflicts, economic uncertainty, a President’s social media posts, a Chancellor’s tears – the list of dynamics is lengthy and sometimes even genuinely bizarre.
Against this backdrop, investors are often told the most prudent response to turbulence is to keep calm and ride out the storm. To quote an ever-reliable maxim: time in the markets beats timing the markets.
There is undoubtedly a lot to be said for such advice. Panic seldom proves the most constructive course of action, and the perils of anxiously flitting from one asset to another are highly unlikely to be outweighed by the profits.
It is vital to recognise, though, that keeping calm is very different from doing absolutely nothing. The former may be sensible, but the latter could be notably counterproductive – if not inexcusable.
This is because inertia represents a well-thumbed page from the playbook of passive investing. It is the stuff of index-tracking indolence.
Active fund managers cannot hope to justify their existence – and, indeed, their fees – if they merely sit on their hands in the face of an unsettled environment. “Inactive” is not what it says on the tin.
The reality is that volatility invariably brings winners and losers. Our job is to find the opportunities to which fluctuating markets give rise – and company meetings are a crucial component of that process.
In search of candour, insight and strategic vision
In the UK, where my fund invests, the picture at present is particularly interesting. Having been relatively out of favour – undeservedly so, in my opinion – UK equities are finally earning more attention, not least as investors spooked by the fallout from the White House’s “Liberation Day” announcement on trade tariffs rediscover the attractions of diversification.
Inevitably, there is a top-down element to identifying the most promising companies right across the market-capitalisation spectrum. Perhaps most obviously, macro considerations and broader quantitative analysis can help shed light on the best-performing sectors or industries.
Construction and financials have been among the frontrunners of late. But even within these arenas, of course, some businesses are much better positioned than others to reward investors over the long term.
This is where meetings can play a huge part. As active managers, my colleagues and I are most likely to invest in a company – and to stay invested in it – if the members of its executive team are prepared to enter into candid discussions about their organisation’s strengths, weaknesses, policies, practices and prospects.
On the whole, our schedule of meetings has always been pretty packed. The COVID-19 pandemic added to the fray by ushering in the age of Teams and Zoom, which in many ways has been tremendously helpful. But nothing beats “being there”. We prefer “real” meetings to virtual ones.
By way of illustration, we recently met in person with five UK financial companies in a matter of days. On each occasion we learnt something we could not necessarily have discerned from company statements, performance figures, annual reports and other commonly available material – or even from video calls, during which asking the most pertinent questions can be tricky.
Some of our face-to-face encounters focus on potential portfolio additions. Some are essentially catch-ups with familiar names. Some are arranged to check out an apparent shift – whether positive or negative – in a company’s narrative.
On average, we aim to meet with two businesses a day. We might meet another five or more a day via conferences. We also like site visits that allow us to get a deeper sense of a company’s culture by engaging with middle management and other employees.
In every instance, ultimately, what we are looking for is evidence of capacity for continued growth. Above all, we want a business’s senior figures to clearly articulate both a coherent and compelling strategy for the future and an ability to adapt to shorter-term challenges.
Those who can provide us with such insights – for example, Renew Holdings (construction) and Pollen Street Capital (finance) – give us good reason to believe in their companies. Those who cannot instead give us good reason to take our search elsewhere.
Galbraith might be spinning in his grave, but the truth is that every one of these meetings is essential to our efforts to arrive at fully informed decisions. With volatility and opportunity marching in ever-tighter lockstep, we see this as an increasingly valuable means of gaining an investment edge.
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