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 week our interviewees are Sam Vecht and Emily Fletcher, co-managers of the 3-star BlackRock Frontiers Investment Trust (BRFI).
Which Sector Shows the Biggest Promise in 2022?
The macro environment in 2022 is a tricky one for risk assets. We prefer to think in terms of stocks rather than sectors, but generally speaking, we like rate-sensitives and defensives which are relatively insulated from inflation pressures. Even after the strong performance year to date, we continue to find some interesting opportunities in the energy sector, reflecting the industry wide capex discipline we have seen over the past few years.
What's the Biggest Economic Risk Today?
We continue to worry about the path of inflation and the likelihood of a global growth shock. Markets (and policymakers) still seem to operate under the assumption that inflation will eventually “normalise” to the low single-digit levels we have grown used to over the last couple decades. Our view is that no one quite knows that the new “normal” level will be. Developed markets, in particular, have seen more than two years of excess money creation which is only just starting to drain from the system. Unlike many emerging and frontier markets, developed countries have no real experience operating under such high inflation prints and the adjustment through a period of persistent high inflation is likely to be a painful one.
Describe Your Investment Strategy
The core investment philosophy is that the combination of a diverse team, a flexible investment style, and a robust risk management process can deliver superior returns. We believe a disciplined approach to macro allocation, combined with in-depth fundamental stock research can deliver alpha to investors.
This belief is based on our view that frontier and emerging markets are heterogeneous, inefficient, complex and cyclical which creates a fertile ground for active investing. By considering the cyclicality of the equity markets, the team looks for investment opportunities beyond the latest themes and trends. We aim to capitalise on these market inefficiencies by seeking to identify inflection points in macroeconomic and political cycles to help guide country allocation decisions, overlaying these country allocations with compelling fundamentally driven stock ideas which we believe can beat market expectations.
Which Famous Investor Do You Admire?
Anyone who has survived a 15-year bear market.
Name Your Favourite "Forever Stock"
We don’t believe in forever stocks. In fact, in our universe, getting overly attached to a stock is possibly a fund manager’s biggest pitfall. There are many stock stories we like but are still happy to trim or exit when valuations get ahead of fundamentals. In a normal year 80% of stocks within emerging markets move 40%, so the market is always giving us opportunities. Understanding the relative strengths and weaknesses of a company’s business model allows you to take advantages of the market dislocations which we frequently see in emerging markets.
What Would You Never Invest In?
We only invest in equities that have fully audited accounts and trade every day on a standard exchange. Within that realm, nothing is out of bounds. We believe everything has a value.
Growth or Value?
Sam Vecht: Value – there’s no such thing as growth independent of price.
Emily Fletcher: Growth – frontier markets should benefit from growth convergence.
If you have ever met us, you would agree that neither of us have any style!
House or Pension?
Both, don’t put all your eggs in one basket, portfolios should be deliberate, diversified and scaled.
Crypto: Brilliant or Bad?
While we believe the underlying blockchain technology has the potential to transform many industries, we view crypto as a high-risk asset.
What Can be Done to Increase Diversity in Fund Management?
It has to start from the ground up. We need to make a conscious effort to recruit diverse junior talent which goes beyond just gender. We need diversity of geography, education, socioeconomic background, interests, and way of thinking. Across our Fundamental Equity platform we run an Investing in Investors programme which aims to train and develop investors from more diverse backgrounds and experiences. While we have made good progress over the last few years, we recognise that there is still a lot of work to be done.
Have You Ever Engaged with a Company and Been Particularly Proud (or Disappointed) in the Outcome?
Engagement in this part of the world is a long and iterative journey. We have to be cognisant that the starting point of many of our companies and countries is very different from what we see in Europe for instance, and so outcomes will take longer to be realised. As investors who understand these companies and their business models deeply, we recognise that a one-size-fits-all approach does not work and try to give them actionable recommendations.
One interesting engagement example is with a company in Latin America which was quite poorly rated by an external rating agency but upon speaking with management, we learnt that it was largely a function of the agency not taking into account their latest data and disclosure. It reinforced the drawbacks of a singular reliance on ratings and the need for substantive research to truly understand ESG considerations.
What's The Best Bit of Advice You’ve Ever Been Given?
Sam Vecht: Work hard, read lots, be patient, support Spurs.
Emily Fletcher: All of the above except that last part, I am a Chelsea supporter!
What Would You Be if You Weren’t a Fund Manager?
Sam Vecht: Playing for Spurs, any position will do.
Emily Fletcher: Sailing around the world, visiting new countries is one of the best bits of the job.
