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 interviewee is Nick Price, portfolio manager of the Fidelity Emerging Markets investment trust (FEML).
Which Sector Shows the Biggest Promise in 2022?
I take a long-term view, which, for me, means thinking about how a stock might do over five years or longer. Consequently, one must take into account geopolitical risk - of which China and US/Taiwan relations are most relevant. Emerging market equities have been avoided as an asset class in recent years, which brings the benefits of beaten down valuations; something which is prevalent in a number of sectors and markets. If I was to pinpoint an area of the market that’s sparking my interest, EM small cap value stocks stand out as a particular opportunity at the moment.
What's the Biggest Economic Risk Today?
The most significant risk is that oil prices push inflation higher. There is a lot of uncertainty about the direction of oil prices which could range from $50 to $130 a barrel in 2023, which would have very different outcomes for the level of inflation and direction of markets. A second risk is high levels of sovereign debt, which makes it difficult for countries to live with high interest rates. The US is a case in point with an existing interest bill of roughly $460 billion on its $30 trillion-worth of debt which equates to roughly $1,100 billionn at current levels of interest, which wipes out the entire defence spending of the country.
Describe Your Investment Strategy
Like many other Fidelity managers, I largely subscribe to the Warren Buffett philosophy, which is to invest in businesses that can sustain high returns over long periods of time and buy these at reasonable (and hopefully low) valuations. I am conservative and don’t like companies with excess leverage - something that is even more important today given the likelihood of a recession and the level of interest rates. Corporate governance is key, particularly the return of capital to shareholders, and I also believe that businesses should be run in a way that treats customers and employees fairly.
Which Famous Investor Do You Admire?
I love the long-term approach of Buffett and his view that you own a part of a business (rather than a fungible share) for long periods of time. And of course, Fidelity’s Peter Lynch who said, “know what you own, own what you know”. I also had the pleasure of working for Fidelity veteran investor Anthony Bolton and observed first-hand his value and contrarian approach.
I particularly admired his willingness and mental ability to go against the tide. But if I was to single out a single investor it would have to be Joel Greenblatt, whose books are required reading for any investor. His “magic formula” of buying high ROE [return on equity] businesses at low multiples is so intuitive and I also love his take on investing in special situations and investing at different layers of the capital structure.
Name Your Favourite "Forever Stock"
This is a question that is fraught with danger. A “forever” stock implies that you are holding it for 30 years or more, so its key characteristic has to be resilience. Technological change is so rapid that many assumptions one takes for granted are upended very quickly. The internet in recent years has completely disintermediated the middle-man and climate change will likely change much of what we take for granted today.
The “Nifty 50” US stocks in the 1960s and 1970s contained companies like Kodak, which were considered forever stocks, and now photography film barely exists. With all that said, I think that consumer staples will stand the test of time, with the likes of Colgate, Nestle and L’Oréal all likely to be relevant in 2050 or 2060.
What Would You Never Invest In?
Stocks with obvious corporate governance concerns. Fads, or the current hot sector or “new thing” are also dangerous. SPACS are an example that fall into this category.
Growth or Value?
I am resolutely focused on quality and do not chase growth for the sake of it. If I really had to choose between growth and value, then I would have to say value. I won’t overpay for a business, so I invest in businesses that I believe are cheaper than the future cash flows of the company, which is a core characteristic of value.
House or Pension?
A pension is probably better, but psychologically it is important to own a roof over your head - the impact of that can’t be understated.
Crypto: Brilliant or Bad?
I prefer assets that generate an income or have a tangible asset value - these provide a solid underpin to valuation.
What Can be Done to Improve Diversity in Fund Management?
Fund management is an industry where historically some demographics have not naturally had the opportunities that others have benefited from. I think that diversity is critical in providing a range of perspectives and ultimately leads to better outcomes, especially in an environment where the ability to challenge perceived wisdom is so important. That said I do think that meritocracy has a place, particularly in an industry where we are judged on performance. I don’t see these two views as being incompatible and think the answer is to hire widely while also being fiercely meritocratic when assessing performance.
Have you Ever Engaged with a Company and Been Particularly Proud (or Disappointed) in the Outcome?
We have carried out a significant number of engagements with Samsung Electronics over the years. To date these engagements have not yielded the results I would have hoped for, given that the company’s policies on returning capital have not improved materially despite it having $100 billion of cash on the balance sheet. I would say that this is broadly the exception, because whilst it can take considerable time, on the whole our engagements are making clear progress, be it on disclosure, work practices, emissions or corporate governance.
What’s the Best Advice You’ve Ever Been Given?
My Dad was always providing advice, with one example being that “life is a journey, take time to enjoy it and stop to smell the roses”. I am not sure I am great at taking his advice, but I recognise the truth in it. I’ve also appreciated the advice that no matter how big a problem you think something is today, with the benefit of time you will realise how trivial it is.
What Would You be if You Weren’t a Fund Manager?
I love the job, so haven’t given this a huge amount of consideration. But if I were to have more free time, I would be fly fishing and taking part in endurance running and cycling events.
