What the Olympics can teach us about investing

It looks easier from the sofa

Chucking a ball, or running a race doesn’t look very complicated from the comfort of an armchair, but in reality, plenty of work goes into gaining an extra few seconds over a competitor.

Fund management is similar. As financial author Richard Oldfield suggests, it is simple, but not easy. It is easy to follow the armchair pundits on the Internet, but very much harder to invest repeatedly in good companies over many years, knowing when to sell, and eking out incremental returns over your peer group.

Artemis Income is a good example. Adrian Frost has led the fund since January 2002. He invests mostly in large cap UK equities – his top 10 includes Tesco, London Stock Exchange, Pearson and BP* – and on the face of it, it looks straightforward. However, over the past decade he has outperformed his peer group in eight out of 10 years**. It’s not easy.

It’s hugely competitive

There are currently almost 30,000 members of British Rowing, of which 42 made it to this year’s Olympics. That’s a hit rate of around 0.14%. It’s a competitive business before anyone has even dipped a paddle in the water against a rival nation. It’s also pretty transparent. If you’re the last to finish, everyone’s going to know about it. That can be a great motivator and requires some mental toughness.

Good fund managers tend to have a similar mindset. There are few industries where failure is quite as obvious. It’s out there in the statistics for all to see. Bad funds will lose assets, will languish at the bottom of the performance tables, feature on industry black lists.

Equally, to be good, you need to be really good. There are over 500 funds in the IA Global sector**, for example, so a manager needs to be top of their game to stand out. BlackRock Global Unconstrained Equity, Rathbone Global Opportunities and T. Rowe Price Global Focused Growth Equity all fulfil that brief, with fund managers that have shown themselves to be tough and competitive over the long-term.

Stick to your discipline

Olympic glory is all about understanding what you’re good at, and being as good as you can possibly be. By all accounts, Adam Peaty was a mediocre freestyle swimmer (by his standards); it was only when an enlightened coach focused on breaststroke that his talent flourished.

Again, there are parallels in investment. In recent years, the success of the large, global technology companies has been a major headwind for many global equity income funds. Until recently few of these megacap technology giants paid a dividend, so they were off-limits to income managers. The temptation was to find ways to incorporate these technology giants, such as through a barbell strategy that balanced high income with growth stocks.

Funds such as Fidelity Global Dividend and M&G Global Dividend stuck to their process in spite of the pressure to take an alternative approach. With investors finally turning away from the expensive mega-caps after a series of difficult results, these funds may have their moment of glory.

Battling through adversity

Some of the stories that have emerged from this year’s Olympics have been astonishing in the strength of character they reveal. Simone Biles dazzled in the gymnastics, but three years ago had thought she would not step foot on the gymnastics floor again.

The highs and lows for a fund manager won’t be so extreme. That said, all good fund managers will go through periods of real adversity when their style is out of favour and markets are against them. The good ones will stick to their knitting.

Nowhere has this been more evident than the recent weakness in smaller companies. Even the strongest fund managers have been battered by an environment where the market appeared not to reward strong performance. However, they may be about to have their Olympic moment as interest rates turn, and M&A activity picks up. We like MI Chelverton UK Equity Growth and IFSL Marlborough UK Micro-Cap Growth for the recovery ahead.

It’s a long term game

No athlete just turns up and runs a race, throws a ball or jumps in a sandpit. It takes years of planning and practice. Michael Phelps reportedly swam 13 kilometres a day, six or seven days a week – at least 80,000 meters every week. But that regime allowed him to win a haul of gold medals in 2004, 2008, 2012 and 2016.

In the same way, investing takes patience and a long term view. Nowhere is this more evident than in sustainable funds. The UN definition of sustainability is “meeting the needs of the present while ensuring future generations can meet their own needs”. It is all about taking decisions today that will be beneficial in future.

This is the objective of funds such as the Janus Henderson UK Responsible Income. Manager Andrew Jones looks for those companies with defendable competitive positions, where the business model is unlikely to be disrupted. His is a longer-term view: he does not want dividends today at the expense of a business tomorrow, so will want to see a company reinvesting in itself as well as paying an appropriate level of income.

While fund managers may not always look like athletic Olympians, the best fund managers will share some of their characteristics – mental discipline, agility, and the ability to bounce back from tough periods.

*Source: fund factsheet, 30 June 2024
**Source: FE fundinfo, August 2024
Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The views expressed are those of the author and fund managers and do not constitute financial advice.