Runners, riders, risk and return: What Royal Ascot teaches you about investing

This week marks the staging of the biggest flat race meeting in the world, as the best horses and riders descend on Royal Ascot.

The five-day event, run from Tuesday to Saturday, crams in no less than eight Group 1 races (the highest class of race available).

In a nutshell, it is one of the most glamorous and prestigious horse racing events of the year. Prize money for the winners totals more than £7.3 million across 35 races, this includes two races worth £1 million for the winner - The Prince of Wales' Stakes on Wednesday and the Queen Elizabeth II Jubilee Stakes on Saturday.

300 hundred years of history and 56,000 bottles of champagne

The origins of Royal Ascot date back to the days of Queen Anne, who actually founded the racecourse back in 1711 when riding out from Windsor Castle. The Royal Ascot meeting evolved from the first four-day race meeting held at Ascot in 1768 but, the meeting as we know it today only started taking shape with the introduction of The Gold Cup in 1807.

The race meeting now welcomes some 300,000 racegoers across five days – many of them dressed to impress. Across the five days they will have consumed 56,000 bottles of champagne, 44,000 bottles of wine, 21,000 jugs of Pimm’s and 60,000 finger sandwiches. There is room for the more sensible among us with 80,000 cups of tea and 128,500 bottles of mineral water also being drunk.

What does 2023 have in store?

This will be the first time Royal Ascot has taken place since the death Her Royal Majesty Queen Elizabeth II. The late Queen was a big racing enthusiast with last year being the first time she missed the whole event since ascending to the throne back in 1952. A lifelong breeder and owner, as well as a supporter of races, the Queen had been in the winners enclosure 24 times between 1953 and 2019. King Charles and Queen Camilla are set to attend Royal Ascot this year.

Last year was a very good year for the market leaders with 40 per cent of the races producing a winning favourite. However, over the last five years the rate falls to 28 per cent. What we can guarantee is a lot of noise about various horses, many of which have been hyped due to their performance against lesser opposition or their performance overseas. History shows these do not always translate to success in this environment.

It’s a bit like the investment environment today. Rising rates and inflation mean the things that have worked in the past may not necessarily work in the future – but there are a few ways to tackle these uncertainties by investing in tried and tested investments for the long-term. Here are a few considerations investors and racegoers might want to consider.

Going Global

There are typically around 500 horses running across the five days, but Royal Ascot is a truly global event with owners wanting to test their charges against the best the world has to offer. This year is no different, with entries from across the globe having been received for the eight Group One races at Royal Ascot, including stars from Australia, Hong Kong and the USA. Racegoers can have their pick across the globe.

With 41,000 stocks to choose from, going global allows managers to cherry pick the right opportunities without being concerned about geopolitical/regional risks across markets. A good example would be the Rathbone Global Opportunities fund. Manager James Thomson targets companies of all shapes and sizes when building a 40-60 stock portfolio.

Style agnostic

Having seen growth investing dominate for the past decade, value has made a strong recovery in the past couple of years. However, we are now at a point in markets where we remain uncertain about what style will lead from here. Growth supporters would say the drivers behind the low rates, low growth world we saw for much of the past 15 years (which caused the quality growth stocks to outperform) haven’t changed; while value supporters believe once inflation hits food and wages it is here to stay for the longer term.

One way to dodge this is by getting the best of both worlds. A good example at Royal Ascot would be the presence of horses with the ability to run on the flat and over jumps. This year we have the likes of Vauban and Tritonic, who are both expecting to run at the event this week.

So how can investors gain exposure to value – without sacrificing growth? Thankfully, there are a number of funds which sit on the fence - giving you the potential for returns in either economic scenario. A good example is the Fidelity Global Special Situations fund, managed by Jeremy Podger, which has also shown its ability to succeed in various environments. The portfolio is well diversified with around 100 to 150 holdings and is unlikely to take large country or sector bets.

Unexposed sorts

We talked about the percentage of favourites who win at Royal Ascot, but the horse racing enthusiasts would tell you the best place to make money is in the handicaps. These are races that enable horses of varied ability to race competitively against each other via the allocation of weight. But lighter horses can also be open to greater improvements for a number of reasons – they’ve not run many times (relatively young/new) or are trying a new distance – this gives them scope to make significant improvements.

The same is true of many bond funds which – after years of challenging markets – are finally finding a host of investment opportunities available to them with attractive yields. A good example is the M&G Strategic Corporate Bond fund, managed by Richard Woolnough. The team undertakes detailed credit analysis with an emphasis on avoiding losers than picking winners (so a good each-way bet!). The manager will actively tilt the portfolio based on his outlook for growth, inflation and interest rates.

The each-way play that consistently delivers

The final consideration is the each-way bet – this is two bets that mean you are betting on the horse not only winning, but also placing (finishing among the first few horses to get a return). It’s an effective way to get a return on your money.

One to consider here is Janus Henderson Absolute Return – a long/short fund which looks to make returns in all market conditions. Two thirds of the fund is positioned in short-term tactical positions where the managers believe a surprise is imminent, with the remainder sitting in long-term holdings.

Past performance is not a reliable guide to future returns. You may not get back the amount originally invested, and tax rules can change over time. The view expressed are those of the author and do not constitute financial advice.

Published on 19/06/2023