Are two investment heads better than one?, July 2018

When you read about fund managers in magazines and newspapers, or hear about them on the radio or TV, the report is usually about individuals: stars of today or the rising stars of the future.
The duos or teams running money – co-managers – tend to get less of the limelight. But are two heads better than one?

As Kenneth Kaye once said: “Two heads are better than one only if they have different opinions.” There are a number of co-managers or teams that have found the right mix and worked together well for many years. Here are three on the Chelsea Selection:

1) Evenlode Income: Hugh Yarrow and Ben Peters

Hugh and Ben have worked together on the very successful Evenlode Income since 2012 and key to their success has been the ability to bring different perspectives to a shared process and defined investment philosophy.

Hugh told us: “We don’t see complications in having two managers on a fund – on the contrary, having more than one perspective should lead to better investment decision-making and risk management. It also helps reduce ‘key-person’ risk for our long-term investors. More generally our aim is to create a team-based approach at Evenlode, and the whole investment team contribute to analysis and portfolio management.”

“Naturally, we disagree from time to time, which we view as a very healthy part of the investment process. As our approach is quite clearly defined, disagreements tend to be relatively minor, such as the timing of investment decisions or percentage weightings to hold in a particular stock at a particular time. We talk through conflicting views collegiately and agree on a route we are both happy with.”

2) JOHCM Asia ex Japan: Samir Mehta and Cho Yu Cooi

Samir and Cho have worked together for 17 years and have co-managed JOHCM Asia ex Japan fund since June 2015.

“We share a similar investment philosophy and approach to defining and identifying good businesses. That’s been a useful starting point,” they told us. “We have never disagreed on the investment merits of a stock - our occasional differences relate more to valuation: how much we should pay for the shares of a company. Each of us also has a stronger edge in certain markets, either due to language or past experience. As such, where that person has an edge, he or she will lead the research on stocks in those markets.

“We think two heads are better than one. We can bounce ideas off each other, while issues not picked up by one person will hopefully be highlighted by the other. As anyone who has analysed stocks and managed equity portfolios – especially in Asia - over the past two decades would know, it can be a very humbling experience. But we constantly use our experience of having lived through several economic downturns and crisis situations. We think working as a team of two can be very rewarding.”

3) Liontrust Special Situations: Anthony Cross and Julian Fosh

Anthony created the 'Economic Advantage' investment approach 20 years ago, when he started managing Liontrust UK Smaller Companies. He says that: “When Julian came on board in 2008 he brought a lot of valuable large-cap experience with him, which was vital for our multi-cap Liontrust Special Situations fund.”

Julian says that the key to a successful partnership is mutual respect and trust, complementary skills, a shared vision, a competitive streak, experience, the ability to get on with one another - and a good sense of humour!

He describes himself as the hedgehog (slow, dogged, single-minded, analytical, who knows 'one important thing'), and Anthony as the fox (mercurial, inquisitive, alert, and who 'knows many things') – and says the success of the fund and the process is due to the blend of these different characteristics.

Because they have a very specific investment process and are long-term, low-turnover investors, disagreements are rare, but their back-stop rule is that they must both be in agreement for any stock to be added to, or removed from, the portfolio.

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 views expressed are those of the managers and do not constitute financial advice.

Published on 31/07/2018