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 Oliver Collin, manager of the 3-star rated Invesco European Equity Income fund.
Which Sector Shows the Biggest Promise in 2022?
We think 2023 is going to be complicated given the number of moving parts, for example – monetary policy and rate hikes, inflation peaking but likely remaining persistent, Ukraine war, energy supply and China unlocking, to name just a few that we know of. Given that backdrop we believe sectors and factors are likely less key versus company specifics. Put simply, we think performance will be more about which individual companies to own as opposed to which sector they are in or which ‘factor’ they are associated with. Typically, uncertainty drives valuations down and hence we feel we need to be wary of high multiples.
What's the Biggest Economic Risk Today?
The biggest economic uncertainty today is how monetary and fiscal policy evolves from here. Could markets go from rate hikes one minute to rate cuts the next. And what would all this mean for fiscal policy? Are we going back to post-GFC monetary dominance or rather more of a balance between fiscal and monetary policy that we’ve seen post COVID? This is crucial and depending on the outcome will have a huge impact on equity valuations and which areas of the market you want to be exposed to.
Describe Your Investment Strategy
Fundamentally we believe the market struggles to value change. The market extrapolates greatness indefinitely whilst typically being poor at pricing improvement. Our strategy aims to exploit the market’s mispricing of companies changing for the better. It requires a combination of rigorous investment analysis, discipline and engagement. As a team we spend a lot of time meeting with and engaging with the managements of the companies we own. This helps us to better understand where the company is today but also where it could be in the future.
Which Famous Investor Do You Admire?
No individual albeit a number of colleagues past and present come to mind. The key is longevity … investors that have shown good decision making through different regimes, remained consistent and disciplined in their approach is what we should all be striving to emulate.
Name Your Favourite "Forever Stock"
There’s no such thing. When a company we own has changed for the better we’re typically looking for new ideas, therefore not wedded to one particular share. UPM is a great example of a company that continues to transition to maintain relevance and improve returns meaning despite being a long-term holding I’m in no hurry to sell it.
What Would You Never Invest In?
We’re open minded when it comes to the type of company we’re considering or the sector they happen to be in. It ultimately comes down to the sustainability of the company in question combined with the ability and willingness to change. If the company meets our criteria, we’d be happy to invest in it.
Growth or Value?
If pushed it has to be value. Our approach is built on the belief that markets struggle to efficiently value change. This means investing in companies where there is both the potential and willingness to change for the better, which is not recognised by the market as such. Given this is a fundamental market inefficiency our funds typically screen as value. From a top-down perspective, we also believe inflation and higher interest rates will be persistent which may continue to challenge the higher multiples of growth.
House or Pension?
Pension! This gives you optionality in retirement and pension means bonds, equities, property…. My House isn’t an investment, it’s a home and if it goes up in value that’s a bonus.
Crypto: Brilliant or Bad?
As an enabling technology and evolution of money then brilliant. As an investment outright we’d be cautious.
What Can be Done to Improve Diversity in Finance?
Lots and differentiation of thought is key to investment success. Many years ago, we realised there was no quick fix and needed to take a long-term approach. We weren’t getting enough female applications and hence we’ve needed to build from the ground up, by visiting schools and selling the financial industry to potential female candidates – we’re starting to see some signs of effects in application numbers.
In terms of social diversity, we’ve got a great programme in place run by colleagues from different socioeconomic backgrounds. Internally we’ve made great strides to educate against bias and improve the recruitment process. We have also committed to external initiatives including the Investment 20/20 programme, giving a broader selection of candidates the opportunity to start, grow and succeed in the industry.
Have you Ever Engaged with a Company and Been Particularly Proud (or Disappointed) in the Outcome?
EDP. The Portuguese utility is an example of where engagement has served us well. External ESG analysis of their coal exposure means many funds are excluded from holding the company. Our interaction with the leadership means we understand the basis of their targets to stop all coal production by 2025 and all hydrocarbon by 2030.
We’ve been able to fully understand why coal as percentage of power production has numerically increased in 2022, however, we also understand this is a temporary phenomenon. To our minds this business is part of the net zero solution and whilst some exclusionary processes are forced sellers, our engagement means we feel comfortable to own this company which has a clear and incentivised plan towards net zero.
What’s the Best Advice You’ve Ever Been Given?
The market isn’t trying to trip you up – meaning the market isn’t trying to catch you out…it’s not picking on you individually so don’t take things personally. Stay objective and disciplined.
What Would You be if You Weren’t a Fund Manager?
I studied Economics and Politics at university. I’ve used both in finance but maybe if I wasn’t in finance, I’d be in politics.
