In this series, we ask leading fund managers their views on everything from investment strategies to who they look up to, and which investments they just wouldn't touch
This week, it's the turn of David Lewis, co-head of strategy on the Jupiter Merlin multi-manager fund range, which carries ratings of between 4- and 5-star on Morningstar.
Which sector provides the biggest opportunity as we near the end of 2021?
In the long term, we are excited about companies' prospects in the technology sector. All companies need to invest more in technology to stay relevant, and the way many industries work is being dramatically changed by it. We have invested in a couple of strategies which give us exposure to those companies that enable others to improve their digital capabilities, and others that provide the platforms for the digital revolution. The current bout of inflationary concerns may impact share prices, but the growth potential in the space is massive.
What's the biggest economic risk right now?
The extent of the slowdown in China and the ramifications for the rest of the world. The Chinese authorities have been reluctant to use monetary and fiscal easing in the same way seen in the West during the pandemic, and their zero Covid-19 strategy has curbed their recovery. Add to this their recent drive to increase regulation, their push to move back to more traditional communist values, and the way in which excesses in their property sector have hit sentiment, we can see a material slowdown in China. China’s economy alone contributed 30% to the annual rate of global economic growth until recently. A slowdown there will impact companies globally and economies entwined in its supply networks.
Describe your investment strategy.
We look to invest in the best active managers, in the right proportions, and at the right time, while looking to limit drawdowns as far as possible during challenging periods. We do that by spending a great deal of time trying to unearth the most talented active managers with robust investment processes, level temperaments and a will to win, backed by a strong team structure. We then assess the macroeconomic and market backdrop to gauge where we believe the areas of greatest and least opportunity lie, before backing our convictions with concentrated positions (while ensuring our portfolios remain diversified so they are robust in a range of circumstances).
Which famous investor or business professional do you look up to, and why?
I'm not an expert on either, but I find James Dyson and David Brailsford inspirational. Tgey both look to continually improve every aspect of what they do iteratively over time in their pursuit of excellence.
Name your favourite 'forever stock'.
Equities have proven themselves to be one of (if not the most) reliable stores of value and source of returns over time. I would expect them to carry on being so. As long as the companies you invest in are not over-leveraged, they remain flexible and you invest in a diversified set of companies, then long-term investors can benefit from the march of innovation and economic growth while also benefitting from equities’ inflation-linked characteristics, even though they may have to stomach some significant volatility at times.
What would you never invest in?
Controversial weapons, including anti-personnel mines, nuclear weapons, cluster weapons, and biological and chemical weapons.
Growth or value?
GARP! Growth at a reasonable price. The terms growth and value can be somewhat confusing, because managers who might be termed as growth see value in the companies they buy. Furthermore, managers seen as value investors will, in the vast majority of cases, be looking for growth in earnings from their companies. I do not believe that only one strategy will outperform markets. The key is that your manager has a keen and consistent sense of what they perceive value to be, and can see undervaluation in their companies when they compare it to likely future outcomes. As such, most investment strategies center around investing in companies with corporate growth profiles at attractive valuations.
Pensions or property?
If we're talking about what I'm doing now, then my savings are going into a new house!
Are you a crypto king?
As the world become more digital, I can envisage a world where cryptos are a key part of financial architecture. Whether any of the current crop are the winners in that environment remains to be seen.
What can be done to increase diversity in the fund management world?
A lot is being done, and the situation is not going to change overnight, as the changes enacted now will take years to filter through. The Jupiter Merlin team is looking to hire a new analyst via the Investment 20/20 scheme, which is a great way for the industry to boost its diversity over time.
Tell us about a time you engaged with a company or manager you invested in, where you were particularly proud or disappointed at the outcome.
We do not engage with companies as we're in the multi-manager world. Rather, we engage with our managers to encourage them to improve their stewardship profiles. We believe the best way to ensure strong stewardship is to invest with active managers who form long-term views and take their roles as custodians of others' capital seriously by engaging with their investee firms and voting on resolutions to ensure the interests of their underlying unit holders are upheld.
Many in the investment world take an exclusionary approach to companies which, for whatever reason, sit on the wrong side of the dividing lines they set on ESG, but we continue to believe that taking a more open-minded approach is more appropriate and can also lead to the better outcomes. We have had very notable success with a number of the boutiques we invest with, encouraging them to clearly document the company engagements they were already enacting and getting them to sign up to industry bodies like the United Nations' Principles of Responsible Investment and UK Stewardship Code.
What's the best piece of advice you've been given?
The harder you work, the luckier you get.
What would you do if you weren’t a fund a manager?
I'd like to say I'd be a wildlife photographer, but I'm not actually that good at photography. I'm Scottish and did chemistry at university so there's a reasonable chance I would have ended up working either in oil or distilling!
