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“ ‘Cause I’m leaving on a jet plane. Don’t know when I’ll be back again”. Actually that’s not true; if I’m not back next Wednesday morning then my wife tells me that I “might as well not come back”. So exactly eight days in the US it is then. And I’m very much looking forward to it. The world of a CIO has changed considerably over the years and it means that one’s focus has to be shared with both investment and a whole host of other matters, most notably growing and evolving regulatory responsibilities. Chuck in the fact that I am the father to three beautiful but “full on” young children and I feel like I always have a lot on my plate. Therefore I always look forward to getting out of the office, away from home and seeing how the world looks away from the lovely corner of South East England where I am lucky to live and work. I am also always grateful to my boss for funding such trips, which I see as a vital part of our research efforts. To be clear, I think that l learn more in a week away than I have from the collective reading of investment bank research in a medium length investment career.
If you think that my introduction is just a ploy to get our CEO to keep writing the cheques and allowing me out of the office, hopefully the reasons behind such trips will counter that claim. My primary view is that it is impossible (and irresponsible) for investors to make decisions over specific investments or asset allocation without actually visiting the places where they invest. The most obvious example of this was the utterly clueless views of many celebrated investors in the previous decade who decried the importance of China and its impact on the world without ever going there. A wise man (Ferris Bueller, obviously) once said that “the world moves pretty fast; if you don’t stop and look around once in a while, you might miss it”; I couldn’t agree more with Mr Bueller. Investors need time to go to places and think about them; without analysis or thinking time to explore your views and free your mind you are restricted. The first thing I did when I had enough money was to start exploring places like Japan and China to get an understanding of the civilisations, cultures and financial systems of those countries.
The “on the ground” research gives you a different perspective. In Japan in 2006 (my first research trip that I paid for) I finally worked out why Japanese equities were doing so badly despite their “en vogue” status at the time (mostly down to corporate ineptitude and inefficiency) and we reduced our exposure upon my return. By contrast, in 2011 I walked in to a meeting in Tokyo to be greeted with “what on earth are you doing here” and learnt that I was the first visitor to the asset manager in years. This utter hatred of the asset class led us to increase our allocation, prematurely as it happens but ultimately a good decision. In Hong Kong on October 31st 2007, we held meetings at almost the exact peak of the Hong Kong market bubble. One of the managers we were interviewing told me not to worry about valuations, as this was a “new paradigm”, and I should get out of his office and go and buy as much property as I could. We reduced our allocation. I was also in Hong Kong at the end August 2015 when markets were collapsing on the China devaluation incident and we increased our allocation based upon the research we were conducting on the ground at the time. On this particular trip across the Atlantic I want to try and work out an answer to the vexing question of whether US assets are “reassuringly expensive” or a relative bubble waiting to burst. This vital answer will help to shape our asset allocations for the rest of this year and 2019.
As part of our investment process and due diligence efforts, we insist upon seeing every one of the managers with which we invest in their own offices every year. You might think that this is unnecessary or excessive, but we believe that seeing a manager in his “natural habitat” is vital to getting to know them, a key pillar of our investment process. It has always been my view that an “away game is different to a home game” and statistics from the sporting world over the years easily confirm this view to be correct. As a rather inept sportsman in a lot of rubbish teams over the years (except the surprisingly excellent and all conquering Psigma football team), I have been thrashed even more often away from home than in the comforts of our own surroundings. Watching Watford and England play football further strengthens my view that away games are tough. The same “away game disadvantage” applies to presentations in my view; having a manager present in front of a “hostile” crowd, in a new environment and often a different time zone can mean we don’t get to see the “real” manager and this is a “blind spot” that we look to correct through the trips we make.
However it is not just meetings with fund managers in centres of financial potency that provide us with investment insight and I try to broaden my horizons as much as possible. It was travelling to the hinterland of China in 2006 and 2008 that gave me a view in to the future power of Chinese consumption. It was travelling around Tennessee, Alabama and Georgia that allowed me to see that whilst Trump wasn’t necessarily popular, Mrs Clinton was positively reviled, and Trump had a far better chance of winning the election in 2016 than the press and betting companies implied. In places like Mumbai and Jakarta, visiting the poorer parts of town affords confirmation of what products the locals aspire to consume and helps build a guide to the future and what is possible in a developing economy. On this current trip I am spending the weekend driving from Cleveland to Chicago through the parts of the US that were so vital to Mr Trump’s success in the election victory. This part of the country will give a good guide to the regeneration of the manufacturing sector and corporate investment.
A broad perspective is vital when it comes to investment and as long as my wife and Boss allow it, then I will try and see as much as I can and get as many answers as possible. But I will definitely be back in eight days…
Chief Investment Officer
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