In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.
This time our interviewee is Steve Wreford, portfolio manager and analyst on the global thematic equity team at Lazard Asset Management, where he manages funds including the Morningstar 5-globe rated Lazard Global Thematic Focus fund.
Which Sector Shows The Biggest Promise in 2022?
The year is off to a bad start, particularly in cyclical sectors. Yet beyond the clear near-term economic risk, the Russian invasion of Ukraine is likely to lead to the rebuilding of supply chains and renewed investment in energy transition infrastructure, that's good news for companies in the industrial sector.
What's The Biggest Economic Risk Today?
Inflation – and in the short-term people may be underestimating the Fed's seriousness about getting it under control. Importantly, even if inflation falls in the near-term, the risks are structurally much higher than they've been in decades.
Describe Your Investment Strategy
We run a set of global thematic equity strategies. All of them are designed to capture the most important structural drivers of the next decade. We implement company-specific ideas across multiple themes to make sure there's always competition for capital between the themes. It's been a successful long-term approach.
Which Famous Investor Do You Admire?
There's a famous investor called Jesse Livermore, who was operating over a century ago, and his observations about markets and human behaviour are still relevant today. The best ever book on investing, Reminiscences of a Stock Operator by Edwin Lefèvre, is about Livermore. It should be required reading for all investment professionals.
Name Your Favourite "Forever Stock"
Nothing is forever. Our average holding period is five years, because we're always finding new, better ideas. I'm in favour of long-term investing and there are many stocks in our portfolio I would anticipate owning for more than 10 years, but not forever.
What Would You Never Invest In?
I think some sectors and industries never revert to mean because of shifting societal norms. You can look over history and find many examples, whether it’s the asbestos industry or the market for horsedrawn carriages. Today, there are sectors of the energy market that are incompatible with the climate transition, and other sectors of the economy that are incompatible with shifting societal norms, such as tobacco. We call these sectors "sunset industries". The sun's going down on them and it's never coming back up again.
Growth or Value?
I don't think about investing as a competition between growth or value. All investments are a combination of an assessment of growth, how much you're willing to pay for a stock today, and whether the current price reflects value. The holy grail is to find great structural investments for the next decade that are discounted due to cyclical weakness or where sentiment is temporarily depressed. We have a number of those across our portfolios today.
House or Pension?
Unsurprisingly, as an investor, I say pension. I believe houses are for people to live in, rather than investing. I also believe in diversification, which you can achieve with a pension, investing in many different businesses drawn from many different sectors globally. That level of diversification is very difficult to achieve in a property portfolio. A well-managed pension is a more robust long-term vehicle.
What Are Your Thoughts on Crypto?
I'm interested in all nascent technologies but we must recognise that the risk of failure is very, very high at the beginning of the adoption curve. There are several underlying technologies that have been extrapolated, too far and too fast. I believe crypto is too speculative for most investors to consider right now but as the industry matures that can change.
What Can be Done to Increase Diversity in Fund Management?
I would like to see greater socio-economic diversity, with more people who have no family connections to the industry working within it. That was my background; I had no connections. The industry underappreciates the link between socio-economic diversity and diversity of thought. Socio-economic diversity increases a team's exposure to parts of the economy that it wouldn't otherwise understand.
Have You Ever Engaged With a Company and Been Particularly Proud (or Disappointed) in the Outcome?
The future of investing is about working with companies to solve issues. I'm proud of the level of interaction we've had with companies whose ESG credentials are nuanced. For example, we've had really active engagement with Honeywell. From an ESG perspective, parts of Honeywell's business are challenging, whilst other parts of Honeywell have a compelling record on sustainability.
What's The Best Bit of Advice You’ve Ever Been Given?
Investing is a business that rewards the combination of a differentiated view and patience. If you're just doing the same as everybody else, you're unlikely to succeed in the long run because this is an industry that necessitates staying ahead of others rather than just following a comfortable consensus. Patience is the scarcest resource in the market, and we are fortunate to have clients who share or long-term time horizon
What Would You Be if You Weren’t a Fund Manager?
I've chosen to do this job because I find it endlessly fascinating to imagine how the world will be different a decade from today and beyond. So, if I weren't in finance, I would be in the world of technology, helping to make innovation and disruption happen. Both careers require an inherent intellectual curiosity and optimism about human progress.
