Latest / Financial Planner Life Podcast / The Investment Clock: What Financial Advisers Need to Know About Market Cycles | Trevor Greetham & Robin Ellis

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The Investment Clock: What Financial Advisers Need to Know About Market Cycles | Trevor Greetham & Robin Ellis · Financial Planner Life Podcast

• 0:00
  SPEAKER_01: And today on the Financial Planner Life podcast, we have Robin Ellis.
• 0:03
  SPEAKER_01: He is the director of portfolio management at St.
• 0:07
  SPEAKER_01: James's Place.
• 0:08
  SPEAKER_01: We also have Trevor Greetham, who is head of multi-asset at Royal London Asset Management.
• 0:14
  SPEAKER_01: So we take a deep dive into behaviour versus strategy.
• 0:17
  SPEAKER_01: What they do when it comes to building portfolios.
• 0:20
  SPEAKER_01: We even look at AI.
• 0:21
  SPEAKER_01: Is it a bubble?
• 0:22
  SPEAKER_01: Is it going to change?
• 0:23
  SPEAKER_01: And what about behaviours?
• 0:24
  SPEAKER_01: When the markets go down, what should financial planners do to reinsure their clients?
• 0:29
  SPEAKER_01: You're going to love this episode.
• 0:33
  SPEAKER_01: So, Trevor, Robin, thanks so much for joining me today on the Financial Planner Life Podcast.
• 0:37
  SPEAKER_01: How are you?
• 0:38
  SPEAKER_01: Very well, thank you.
• 0:38
  SPEAKER_01: Thanks for having me on.
• 0:39
  SPEAKER_01: Very good.
• 0:40
  SPEAKER_01: Very welcome.
• 0:40
  SPEAKER_01: Welcome to the greenhouse.
• 0:41
  SPEAKER_01: It's incredibly warm in this room.
• 0:43
  SPEAKER_01: So if we're sweating, it's not because we're talking we're talking about money and investments.
• 0:47
  SPEAKER_01: It's incredibly warm in this in this office.
• 0:49
  SPEAKER_01: So I just want you to kind of just briefly introduce yourself, first of all, for those who don't know you.
• 0:53
  SPEAKER_03: So if we start with yourself, yes, I'm Trevor Greetham, head of multi-asset for Royal London Asset Management.
• 0:58
  SPEAKER_03: And I've uh had an investment career that really started of 1992, I think, when Sterling left the exchange rate mechanism.
• 1:05
  SPEAKER_03: So I've been working in investments at insurance companies or asset managers or investment banks since then.
• 1:11
  SPEAKER_01: Okay, fantastic.
• 1:12
  SPEAKER_02: Yourself?
• 1:12
  SPEAKER_02: I'm Robin Ellis, director of multi-asset portfolio management at St.
• 1:15
  SPEAKER_02: James's Place.
• 1:16
  SPEAKER_02: So I look after our Polaris range, Polaris Multi-index, and oversee our third-party multi-asset managers as well.
• 1:22
  SPEAKER_02: So about 150 billion all in.
• 1:24
  SPEAKER_01: Wow.
• 1:24
  SPEAKER_01: Okay.
• 1:25
  SPEAKER_01: Trevor Burrus Day, what do you actually do?
• 1:28
  SPEAKER_03: Well, we have we have a daily tactical asset allocation meeting.
• 1:31
  SPEAKER_03: So that meeting is where you're deciding are you going to make changes in the portfolios?
• 1:36
  SPEAKER_03: But outside of that, that's that's a sort of culmination, if you like, of a of an investment research function where we look at um different things that can help you get nedge really as an investor.
• 1:46
  SPEAKER_03: And we feed the sort of results of that research into our daily meeting.
• 1:51
  SPEAKER_03: Um and that will be saying, remember what you said six months ago or five years ago when you were thinking about the business cycle, you should be buying stocks today.
• 1:58
  SPEAKER_03: And based on those signals, we then have that discussion: is this what we want to do today?
• 2:02
  SPEAKER_03: And how should we override that if we need to?
• 2:04
  SPEAKER_03: So it's a kind of been a research-led process.
• 2:06
  SPEAKER_03: Love it.
• 2:07
  SPEAKER_01: How do you just sort of decide where to invest money then?
• 2:09
  SPEAKER_01: What's the Yeah?
• 2:10
  SPEAKER_03: Well, I like to keep a very broad palette.
• 2:12
  SPEAKER_03: So as I I often say there's no such thing as passive and multi-asset.
• 2:15
  SPEAKER_03: And what I mean by that is that uh people who come to an advisor looking for a multi-asset solution, they've really come with a long-term savings problem.
• 2:23
  SPEAKER_03: They're saving money for a for for retirement or a particular need, and they have a risk appetite and they want to make money, um, but they haven't come to you saying it's got to just be this asset class or this asset class.
• 2:34
  SPEAKER_03: So we're all in the business of blending.
• 2:36
  SPEAKER_03: Um I like to kind of think, okay, we've got stocks and bonds, are the other are there other things that have got the sufficient length of history that we can understand them, how they're going to behave in different situations and blend them in.
• 2:47
  SPEAKER_03: So we'll include sometimes um commodities, but pretty much all our multi-asset funds have some commodity exposures and inflation hedge.
• 2:55
  SPEAKER_03: Some other hunts have commercial property.
• 2:57
  SPEAKER_03: Kind of really depends, but we like to kind of think quite broadly.
• 2:59
  SPEAKER_01: Okay, cool.
• 3:00
  SPEAKER_01: When it comes to actually picking somebody to run the money, how do you do that?
• 3:04
  SPEAKER_02: Well, uh at St.
• 3:05
  SPEAKER_02: James's Place, we've got kind of two main things we're trying to do.
• 3:09
  SPEAKER_02: One is identify a manager with an edge, which I'll I'll explain.
• 3:12
  SPEAKER_02: And then also, uh as Trevor said, a lot of this is about the combination, the power is in the combination.
• 3:18
  SPEAKER_02: It's how do we make sure we're finding managers that actually blend well together as opposed to just being good in isolation.
• 3:24
  SPEAKER_02: I think the main thing I point to them in terms of what we're looking for is it's all about edge.
• 3:29
  SPEAKER_02: And for me, that that's more, and I suppose as as my career has developed, really it's shifted more from quantitative analysis, much more towards the qualitative.
• 3:38
  SPEAKER_02: But really, what we want to do with managers is identify how are they going to add value for our clients, how are they going to be superior from a returns perspective?
• 3:46
  SPEAKER_02: Do we believe it?
• 3:47
  SPEAKER_02: Do their teams believe it?
• 3:48
  SPEAKER_02: Do their behaviors back that up?
• 3:51
  SPEAKER_02: Because really, there's a huge disconnect, and even the best investors guaranteed will go through prolonged periods of underperformance.
• 3:57
  SPEAKER_02: So increasingly, we're trying to like get under the manager's skin, really identify what makes them tick, what are they trying to do, and then blend managers that will perform differently in different times so that overall clients' experience will be nice and smooth.
• 4:08
  SPEAKER_03: That's so important.
• 4:10
  SPEAKER_03: I mean, it's I was often saying having a level head is so important as an asset manager because the two most difficult times are when you're underperforming.
• 4:16
  SPEAKER_03: Yeah.
• 4:16
  SPEAKER_03: And the danger then is you lose, you you abandon your process because you it's painful.
• 4:22
  SPEAKER_03: And the other dangerous time is when you're outperforming, because then you think you're walking on water and you stop questioning and thinking.
• 4:27
  SPEAKER_03: But you've got to have that ability to kind of you know keep a level head, whether whether you're winning the league or losing the league.
• 4:33
  SPEAKER_02: That's it.
• 4:33
  SPEAKER_02: And it's it's so rarely the performance that drives the selection decision from my perspective.
• 4:38
  SPEAKER_02: Uh a lot of a lot of the industry is is looking at if negative performance should equal action required, which I think is quite a dangerous precedent.
• 4:46
  SPEAKER_02: Really, my experience of when underperformance is a problem is really, as you say, Trevor, if it starts to dictate behavior, if actually managers stop sticking to their process, if people start to jump shit because performance is under pressure.
• 4:58
  SPEAKER_02: Really, though, if you can identify edge, you can identify what a manager's doing, underperformance is actually a much better predictor of good performance.
• 5:06
  SPEAKER_02: Normally, if you're if you're going to invest somewhere that's just performed really well, what you tend to be doing is either investing in someone that's an average investor but's just got very lucky and then about to revert to the mean, or invest with an investor who's now sitting on an extremely expensive portfolio of assets that have just gone uploads.
• 5:22
  SPEAKER_02: So actually, if you can identify a really strong process, you identify recent underperformance, actually, that as an industry, we should be looking for that as the signal rather than the other way around.
• 5:32
  SPEAKER_01: Fair.
• 5:32
  SPEAKER_01: What sort of questions then do advisors or investors tend to ask around due diligence when it comes to investment?
• 5:40
  SPEAKER_03: Yeah, well, you normally hear about the five P's, don't you?
• 5:43
  SPEAKER_03: And sometimes there are six or four, but you know, they're they're their performance and price, and often a lot of processors will rank people by recent performance.
• 5:52
  SPEAKER_03: So they'll be looking at the top performing funds and then they'll say which ones are the cheapest.
• 5:56
  SPEAKER_03: So often performance and price come first, but you know, the other ones I think I I would agree matter more, and their philosophy process and people.
• 6:05
  SPEAKER_01: What should they be asking you?
• 6:07
  SPEAKER_03: Well, they should be digging a lot deeper into the investment philosophy, what what sort of motivates what you do.
• 6:13
  SPEAKER_03: Um do you have a process that's kind of to use the jargon repeatable?
• 6:17
  SPEAKER_03: You know, did you just get lucky or is there something you're doing?
• 6:20
  SPEAKER_03: You can evidence the performance that you've had came from a particular way of looking at markets.
• 6:25
  SPEAKER_03: And then the people I think is really critical because uh you know what's really difficult is if you've got a kind of star portfolio manager culture where it all relies on one individual and a lot of gut feel, you know, discussion-based investment processes with one big ego in the room, that that that to me is a bit of a warning sign.
• 6:44
  SPEAKER_03: So what we like to make make sure is that the loudest voice in all of our daily tactical meetings comes from the investment process, comes from the the models like the investment clock, business cycle model, or whatever it might be.
• 6:54
  SPEAKER_03: And then if if the evidence is kind of almost overwhelming from your investment process, nobody can really overrule it.
• 6:59
  SPEAKER_03: And that's you know how it should be.
• 7:01
  SPEAKER_03: The the bar should be set high to overrule your process.
• 7:05
  SPEAKER_03: And if you're overruling it, it should be based on you know really special circumstances.
• 7:09
  SPEAKER_03: And typically in our team, we'd like to have two people's names on it if we're going to overrule it.
• 7:14
  SPEAKER_03: How often do you get asked about culture when people are doing due diligence on you?
• 7:18
  SPEAKER_03: Um very rarely directly, although I think a lot of people are thinking about culture, but I think that matters a lot, and it comes back into the people.
• 7:26
  SPEAKER_03: And you know, Royal London, we're kind of fortunate that being a being a mutual or owned by a mutual, um, we tend to have quite long tenures.
• 7:35
  SPEAKER_03: So one of my team retired recently after uh 37 years working for the same company.
• 7:41
  SPEAKER_03: We've got a a portfolio manager you may know on our on our Sterling high yield team who's been working 54 years for Royal London.
• 7:48
  SPEAKER_03: Now, you know, people come and go in all in all processes, but what's great about the culture that we're in is that good people usually stay.
• 7:55
  SPEAKER_02: Yeah.
• 7:55
  SPEAKER_02: I think that's one thing that's often often forgotten, really, culture, because that that's what dictates the behaviours.
• 8:00
  SPEAKER_02: It's what dictates uh how do you avoid a star manager culture?
• 8:04
  SPEAKER_02: How do you make sure there's challenge in the process where you have a culture that encourages it, it dictates the behaviours at play.
• 8:08
  SPEAKER_02: And again, it's something we spend a lot of time at SJP making sure that our analysts are sitting in fund manager meetings, really getting to know the team.
• 8:16
  SPEAKER_02: Because again, these are things that are very hard to get a handle on, but is ultimately for me probably the best determinant of future returns of future strong performance.
• 8:25
  SPEAKER_02: It's it's all about, as Trevor said, that the the the various Ps and then the culture of how it all how it all knits together.
• 8:31
  SPEAKER_01: So, how do you what sort of questions would you ask Trevor then?
• 8:34
  SPEAKER_01: What do SJP ask?
• 8:35
  SPEAKER_02: We'd be asking, what is your edge?
• 8:38
  SPEAKER_02: Why do you think that the returns that you will generate or the process you have will generate returns better than the market and better than what other people are doing?
• 8:46
  SPEAKER_02: We'd then sense check what Trevor says against what we think is a reasonable response.
• 8:50
  SPEAKER_02: We'll then interview members of Trevor's team and make sure there's alignment there because it helps if everyone's singing on the same hymn shit, are you all trying to add value in the same way?
• 8:57
  SPEAKER_02: Are you all clear on what your edge is?
• 9:00
  SPEAKER_02: And then it's about monitoring behaviours relative to what we've been told through time.
• 9:04
  SPEAKER_02: Ultimately, there's an awful lot of luck involved in investment.
• 9:08
  SPEAKER_02: And to try and distinguish luck from skill, it's identifying what's the rationale, and if you stick to it over 10 years, you should come out with good results.
• 9:19
  SPEAKER_02: So you can't just look at performance, you need to look at the context of that, which for me comes back to the behavior of the team.
• 9:26
  SPEAKER_01: So, how do financial advisors get access to someone like you, Trevor?
• 9:30
  SPEAKER_03: Um well, in terms of our thought process, we we're you know, we're very uh structured in the communications that we will do.
• 9:36
  SPEAKER_03: So we have an investment clock blog on our website where the whole team are writing on there.
• 9:42
  SPEAKER_03: I mean, I it used to be just me, but now there's you know, there are about five different people who'll contribute.
• 9:46
  SPEAKER_03: Our our economist Melanie Baker or some of the younger guys on the team.
• 9:50
  SPEAKER_03: Um we do sort of frequent sort of client webinars.
• 9:53
  SPEAKER_03: And when something big is happening, you know, we'll we'll we'll say stuff in the press as well.
• 9:57
  SPEAKER_03: So in the trade press, you'll you'll read about us quite a lot.
• 9:59
  SPEAKER_01: Should we get stuck into webinars, conferences, podcasts, that kind of stuff?
• 10:03
  SPEAKER_03: Yeah, I know I'm I'm a big fan actually.
• 10:05
  SPEAKER_03: I do like podcasts because it gives you a chance to sort of uh explore things at great greater length.
• 10:10
  SPEAKER_03: And uh I do think um sometimes the sort of you know, a typical conference um that you might go to, it's like speed dating.
• 10:17
  SPEAKER_03: I mean you'll be lucky if you've got 20 minutes on on stage.
• 10:20
  SPEAKER_03: Sometimes it's you you go up to Harrogate and you're on stage for 10 minutes.
• 10:23
  SPEAKER_03: And how you're supposed to get across any of the P's, I don't know.
• 10:27
  SPEAKER_03: Um so I think you know the P for podcast is quite a good one there, isn't it?
• 10:30
  SPEAKER_03: Because you do get a chance to really scratch below the surface a bit.
• 10:33
  SPEAKER_01: How many conferences do you tend to go to?
• 10:35
  SPEAKER_03: I I'm a bit of a stay-at-home.
• 10:37
  SPEAKER_03: I've got people on my team who are out sort of meeting advisors all the time.
• 10:40
  SPEAKER_03: Uh we do roadshows from time to time, but um I think actually um we've been doing quarterly webinars for the last decade.
• 10:46
  SPEAKER_03: So 40 quarterly webinars.
• 10:48
  SPEAKER_03: Um we often get like 500 or 1,000 advisors online.
• 10:51
  SPEAKER_03: Um that to me is my favourite, consistent way of updating.
• 10:55
  SPEAKER_01: Yeah.
• 10:56
  SPEAKER_01: What about conferences with you?
• 10:57
  SPEAKER_01: The SJP conferences, do you get stuck into the investment conferences?
• 11:00
  SPEAKER_02: Yeah, I was smirking uh a second ago when Trevor said he likes doing webinars because since since you since you started the SJP mandate, I think that the requirement's gone up a little bit in that we we try to do weekly podcasts with our advisor community on what's going on in the markets, what's going on in the different funds that we run.
• 11:15
  SPEAKER_02: And we just had our annual investment conference actually, which which myself and Trevor both both both spoke at.
• 11:21
  SPEAKER_02: But really, I guess what what's the gap we're trying to fill?
• 11:25
  SPEAKER_02: My observation would be the challenge with conferences is the correlation between really eloquent, great public speakers and how effective they are as investment decision makers isn't isn't perfect.
• 11:38
  SPEAKER_02: And what tends to happen at conferences is you get great people, great presenters, and there's a natural tendency, certainly earlier on in my career, you you can't you extrapolate, wow, that person's a really impressive person.
• 11:52
  SPEAKER_02: I bet their investment team's really good as well.
• 11:54
  SPEAKER_02: That's not necessarily the case.
• 11:56
  SPEAKER_02: So what we try to do from the SJP conference is give our advisors access to great managers, but as I said, from what we're trying to achieve with our process, a carefully curated list of managers who we know have got the substance to back up what they're saying.
• 12:08
  SPEAKER_02: And then we also make sure that the cur the curators ourselves, so it's myself, my team, the t the team behind Polaris managing the multi-asset portfolios, the manager research team selecting the likes of Trevor are also available so advisors can know why we're selecting who we're selecting.
• 12:24
  SPEAKER_03: I do I do really like the communication side of the role.
• 12:27
  SPEAKER_03: It's interesting because I I spent spent about a third of my career at an American investment bank where I was like a professional backseat driver, going around seeing people like Robin and saying, if I were you, this is what I would do.
• 12:37
  SPEAKER_03: Um so I've spent a lot of time you know communicating, crafting the message.
• 12:41
  SPEAKER_03: And because of that, when I when I'm as an investor, I think the communication is actually quite an important part of the process, weirdly, because if you can't explain why you're doing something in simple words in a five-minute meeting or a one-hour meeting if needs be, you probably haven't got your thinking lined up.
• 12:57
  SPEAKER_03: And there have been times when I've been, you know, putting together a slide deck or whatever, trying to explain the position we've got.
• 13:03
  SPEAKER_03: And the process of actually putting the slide deck together, you've probably done this as well.
• 13:06
  SPEAKER_03: You couldn't you go, I'm not even convincing myself anymore.
• 13:09
  SPEAKER_03: And you go back and you change the change the portfolio.
• 13:12
  SPEAKER_03: So I think there is a benefit in communicating as part of a send check.
• 13:16
  SPEAKER_03: It's that one moment when you're about to hit send on something that you get a bit of distance from your own view and you do that last read-through, and you kind of go, if I got this in my inbox, you know, I've I you know I wouldn't be convinced.
• 13:27
  SPEAKER_01: You know, look, I'm I'm a big fan of long-form content anyway.
• 13:30
  SPEAKER_01: So if anyone can actually put themselves into a position where someone can ask them a question on the hop, I think it's a really great way to display the person's character.
• 13:37
  SPEAKER_01: You know, it's very easy to hide by in a presentation, build something that is absolutely perfect for 10 minutes to dazzle somebody and that's marketing.
• 13:43
  SPEAKER_01: Yeah, that's that halo effect, you know.
• 13:45
  SPEAKER_01: And it's very I think it's very easy to do that and wheel somebody out who's a bit of a superstar on stage.
• 13:50
  SPEAKER_01: But I think being able to sit down and actually be uh forced to answer questions to see how you react, I think it's I love panels actually.
• 13:57
  SPEAKER_01: I think panels are really good.
• 13:59
  SPEAKER_03: And you come out of them and you've crossed swords with other people who've got you know a well-articulated, different take, you learn something from it, everyone learns something from it.
• 14:06
  SPEAKER_03: Exactly.
• 14:06
  SPEAKER_01: Yeah, the art of conversation, right?
• 14:08
  SPEAKER_01: You take something away.
• 14:09
  SPEAKER_01: Brilliant.
• 14:09
  SPEAKER_01: So looking at building portfolios then.
• 14:11
  SPEAKER_01: So what are the key inputs you look for when you're building portfolios, Trevor?
• 14:15
  SPEAKER_03: Um, well, I mean, you know, diversification is key to us.
• 14:19
  SPEAKER_03: I mean, the two things we believe in is diversification and active management.
• 14:22
  SPEAKER_03: Um, and you know, we're looking for asset classes that that make sense over the long run, that we can understand why they should be paying you more than cash over the long run.
• 14:32
  SPEAKER_03: So, you know, if there's a risk premium, what is it?
• 14:34
  SPEAKER_03: Is it because it's an illiquid asset or because it's a risky asset?
• 14:38
  SPEAKER_03: You know, whenever something's giving you a return better than cash, nothing's a free lunch.
• 14:42
  SPEAKER_03: So there'll be a risk that will be its Achilles' heel.
• 14:45
  SPEAKER_03: So you've got to understand, you know, what is it about this asset class that means sometimes it will be uncomfortable to hold.
• 14:51
  SPEAKER_03: Um, and then really trying to look at asset classes that when you combine them together give you more as a sum of the parts than you add individually.
• 14:59
  SPEAKER_03: And I mentioned commodities earlier, they're a really interesting asset class because it's not widely included routinely in portfolios still.
• 15:07
  SPEAKER_03: Um negatively correlated with both stocks and bonds when there's a geopolitical shock, like we saw in March.
• 15:13
  SPEAKER_03: So oil went up and stocks and bonds both went down.
• 15:16
  SPEAKER_03: And what that means is if you've got a kind of risk-targeted portfolio, you can include the commodities and you haven't really changed the overall risk level.
• 15:24
  SPEAKER_03: They're uncorrelated.
• 15:25
  SPEAKER_03: So they give you that hedge, really as a kind of anti-bond in a portfolio and inflation hedge.
• 15:30
  SPEAKER_03: They haven't changed the overall risk level.
• 15:32
  SPEAKER_03: So individually they've got to make sense, but they've also got to make sense when combined.
• 15:36
  SPEAKER_01: What about the investment clock approach?
• 15:38
  SPEAKER_01: Can you explain that?
• 15:39
  SPEAKER_03: Well, that's that's the idea of the investment clock is it's kind of thinking about the global business cycle as a sort of clock face.
• 15:46
  SPEAKER_03: And you can imagine you've got these different points around the clock face.
• 15:49
  SPEAKER_03: And that idea goes back.
• 15:51
  SPEAKER_03: The earliest reference I can find to it is from the 1930s.
• 15:55
  SPEAKER_03: London Evening Standard, is it the right time in the investment clock to buy a house in London?
• 15:59
  SPEAKER_03: You know, something's don't change.
• 16:00
  SPEAKER_03: Um, and that that showed a clock face.
• 16:02
  SPEAKER_03: And the clock face was labeled things like recession, recovery, late cycle, slowdown.
• 16:07
  SPEAKER_03: And there were different asset classes, like for the for the recovery, you want equities, for example.
• 16:12
  SPEAKER_03: Um, what we do with it, which is a bit different, is we I've always found the problem with that kind of clock is you'd say to someone, where are we?
• 16:19
  SPEAKER_03: And they go, mid-cycle.
• 16:21
  SPEAKER_03: Because it's really hard to know, isn't it?
• 16:22
  SPEAKER_03: Yeah.
• 16:22
  SPEAKER_03: And you don't know you're in a recession usually until months after it started, and the markets have already moved.
• 16:28
  SPEAKER_03: So what we do instead is we use growth and inflation indicators to give us an idea of where we think we are on the clock to tell the time.
• 16:34
  SPEAKER_03: So, you know, for example, what we've been worrying about this year is stagflation, a slowdown with rising inflation because of what's been going on in the Middle East.
• 16:43
  SPEAKER_03: Um, if you get falling inflation and strengthening growth, that's recovery.
• 16:48
  SPEAKER_03: So recovery is good for stocks, stagflation is good for commodities, and that sort of thing is one of the factors that feeds into our tactical positioning.
• 16:56
  SPEAKER_01: And sort of as as the director of portfolio management, does that investment clock style?
• 17:01
  SPEAKER_01: Does that sit well with you in understanding what's going on?
• 17:04
  SPEAKER_02: Yeah, well, we we do it slightly differently, but but just to take a step back first against what what what I'm trying to do with my responsibilities for almost giving our advisors and our clients different ways to invest in ready-made portfolios.
• 17:18
  SPEAKER_02: That's ultimately the job within that.
• 17:20
  SPEAKER_02: There are two things that multi-asset investors do.
• 17:22
  SPEAKER_02: They build a starting point, so a resilient, I call it a resilient core.
• 17:27
  SPEAKER_02: What does that mean?
• 17:27
  SPEAKER_02: It means a blend of asset classes that hopefully move differently in different environments to give you a quite stable return profile through time.
• 17:36
  SPEAKER_02: And then you've just got to then make above average decisions over the long term.
• 17:41
  SPEAKER_02: So, how how we build a resilient core and how Trevor builds a resilient core, what we're trying to do is identify different processes that are credible of slightly different take.
• 17:49
  SPEAKER_02: For example, we don't use commodities when thinking about our portfolios.
• 17:52
  SPEAKER_02: One of the criteria we have is making sure that all assets have a positive expected return through time.
• 17:58
  SPEAKER_02: And we we can definitely debate commodities, that's where we struggle with commodities, but we observe strong teams like Trevor's team who can articulate what they're trying to do, which is slightly different to what we're trying to do, but nevertheless do it with integrity and do it in a repeatable way with repeatably good results.
• 18:13
  SPEAKER_02: So we recognise it's a good process.
• 18:14
  SPEAKER_02: We therefore give our advisors access to Trevor and his team.
• 18:17
  SPEAKER_02: We've also got a different approach that we try to use in Polaris, for example.
• 18:22
  SPEAKER_01: Yeah, you've mentioned Polaris.
• 18:23
  SPEAKER_01: So can you just tell us what that fund range is and how it works?
• 18:25
  SPEAKER_02: Yeah, so I hate the word flagship, but I suppose you you would you would argue it's our flagship range.
• 18:31
  SPEAKER_02: It effectively it is a risk, uh a range of risk-rated multi-asset portfolios.
• 18:37
  SPEAKER_02: And if I had to try and summarize it succinctly, it would be taking everything that we know of an investment team of about 100 and making sure all of those things clients have access to in portfolios.
• 18:47
  SPEAKER_02: So whether that's asset allocation, manager selection, portfolio construction, it's us applying our best investment thinking to come up with a ready-made up multi-asset portfolio that advisors can invest in.
• 18:58
  SPEAKER_02: I said flagship because it's just past the£110 billion mark.
• 19:03
  SPEAKER_02: So we've got an unrestricted version which allocates to active managers and passive managers and combines the two.
• 19:09
  SPEAKER_02: That's the one that's that's very large.
• 19:11
  SPEAKER_02: We recently launched an index version, so one that's just using underlying indices, so much more about portfolio construction, much more about asset allocation, but comes with a much lower charge and therefore gives a different experience, uh a kind of a different um demand curve, I suppose, from a client perspective.
• 19:29
  SPEAKER_02: So you've got those two two different ranges.
• 19:31
  SPEAKER_01: So if you were to, if someone's asked you the question as to why you've got active and index, what would your answer be to that?
• 19:37
  SPEAKER_02: Index multi-asset portfolios in the UK represent about over 100 billion pounds of client demand.
• 19:43
  SPEAKER_02: So one of the things we try and do is recognize that client focus should be at the core of everything we create from a portfolio perspective.
• 19:50
  SPEAKER_02: It's hard to deny that a significant proportion of the UK investor base want index investing multi multi-index strategies.
• 20:00
  SPEAKER_02: We also recognise that some people don't.
• 20:02
  SPEAKER_02: So Polaris is we will manage the active, passive split for you based on our own judgment of the environment, our own judgment of different manager skills.
• 20:10
  SPEAKER_02: We recognise, though, that some people just want to invest in the index space and we want to make sure that we can do that credibly for them.
• 20:15
  SPEAKER_02: So we we thought it was appropriate and a good thing to give clients that choice.
• 20:20
  SPEAKER_01: And how does scale benefit the investors?
• 20:23
  SPEAKER_02: So scale is there's there's a number of different competing research there.
• 20:27
  SPEAKER_02: But for me, the first thing is in terms of competitiveness of fees.
• 20:32
  SPEAKER_02: So with our scale, we can we're allocating pretty sizable mandates to different managers.
• 20:37
  SPEAKER_02: That gives us great access to unconventional places.
• 20:42
  SPEAKER_02: We invest globally, so a lot of the US market is more institutionally focused.
• 20:46
  SPEAKER_02: But given the size of mandates that we have and our more institutional approach, I suppose, we think of ourselves as giving our clients access to institutional restricted management at really attractive fees because we can we we can use our scale to do that.
• 21:00
  SPEAKER_02: Access is another one.
• 21:02
  SPEAKER_02: We talked about the challenge in the industry for for perhaps those without scale.
• 21:08
  SPEAKER_02: To get access to Trevor is really difficult.
• 21:10
  SPEAKER_02: Trevor Trevor mentioned without whether wishing to use your words against you at all.
• 21:13
  SPEAKER_02: Yeah, Trevor mentioned his team are out on stage at investment conference, uh, various investment conferences around the around the country, which again, the fallacy of investment conferences is you get to see how good a public speaker a team is, you don't get to see what they're doing day to day.
• 21:26
  SPEAKER_02: With our with our scale, you know, we're we're lucky enough to be able to speak to Trevor.
• 21:31
  SPEAKER_03: We sound like the Scarlet Pimpanel, you know.
• 21:33
  SPEAKER_03: But you know, what's what's great about the the the the partnership really with with SJP is also the the sorts of blue sky thinking meetings we've also had about you know customers and advisors and client you know, portfolios and propositions.
• 21:46
  SPEAKER_03: So it's really great to have that sort of you know true, sort of open minded discussion, you know.
• 21:51
  SPEAKER_03: And uh we we're managing strategic manage for you.
• 21:55
  SPEAKER_03: Um and again, you know, how does that differentiate from Polaris or Polaris Multi Index?
• 22:00
  SPEAKER_03: And I would say it's a slightly more tactical allocation-driven product.
• 22:05
  SPEAKER_03: So the daily meetings, the daily adjustments.
• 22:07
  SPEAKER_03: I know you guys tend to make bigger changes more infrequently.
• 22:12
  SPEAKER_03: There's many different ways to invest well.
• 22:15
  SPEAKER_03: We make smaller incremental changes every day.
• 22:18
  SPEAKER_03: And we're offering something slightly different.
• 22:20
  SPEAKER_03: And you're putting about commodities, just to come back on that one.
• 22:26
  SPEAKER_03: We do think, I mean, commodities the last 10 years have beaten cash by 5% a year on average for a sterling investor.
• 22:31
  SPEAKER_03: So they've actually been a good return investment.
• 22:33
  SPEAKER_03: But they do have very long bear markets called supercycles when they're going to give you negative returns.
• 22:39
  SPEAKER_03: And it kind of works in the framework that we've got because we're so tactical as well.
• 22:43
  SPEAKER_03: So we can include some commodities, but our tactical bandwidth allows us to zero them.
• 22:49
  SPEAKER_03: So if we're in a 10-year commodity bear market, our daily team meetings are going to go, nah, still don't want any commodities.
• 22:55
  SPEAKER_03: So it does, it's different.
• 22:56
  SPEAKER_03: If you weren't being that tactical, you probably wouldn't include them in your mix.
• 22:59
  SPEAKER_02: Yeah, and just to reiterate, so I didn't offend anyone, I think that that's I think perfectly right.
• 23:04
  SPEAKER_02: As Trevor said, one of our, I guess, founding tenants at SJP was there is no monopoly on investment talent.
• 23:10
  SPEAKER_02: And it would be mad for us to now say Polaris is the only way our investors should invest.
• 23:15
  SPEAKER_02: Exactly.
• 23:15
  SPEAKER_02: So what we're trying to do is find a pool of insightful, uh, intelligent investors with integrity and combine them and curate them for our advisors to use with their clients.
• 23:26
  SPEAKER_01: I love it.
• 23:26
  SPEAKER_02: Trevor Burrus is diversification still king?
• 23:29
  SPEAKER_03: Yeah, well, when I was working for the American Investment Bank in the 1990s.com bubble, and we'll come on to the AI stocks in a minute, but um the um the the the whenever I talked about diversification, I would get the answer diversification diversification.
• 23:43
  SPEAKER_03: And the idea was that if you weren't just in the SP 500 or just in the dot-coms, you know, that's just making your returns worse.
• 23:50
  SPEAKER_03: And I think if you've been around the block a few times, you've seen a few booms and busts, you you kind of know that it's good to have that mix.
• 23:57
  SPEAKER_03: And in particular, it's good to diversify properly for your lower risk appetite customers.
• 24:04
  SPEAKER_03: And those are the ones that for whom it matters most, you know, and uh a lot of them were too exposed to bond duration in 2022, for example.
• 24:12
  SPEAKER_03: Um, and so I think diversification really matters, but in particular, it really matters for the people that really don't want to lose much money.
• 24:18
  SPEAKER_01: Can you over-diversify?
• 24:20
  SPEAKER_03: Um Well, yeah, you probably can.
• 24:26
  SPEAKER_03: I mean, if if it depends, so so at the higher end of your risk spectrum, you know, in the end, the asset class that's going to make you most money is equities.
• 24:33
  SPEAKER_03: If you're a if you're a long-term saver for your pension and you're in your 30s, say, you you can live through some bear markets and you're buying equities at lower levels in those bear markets, and you shouldn't be too diversified.
• 24:44
  SPEAKER_03: So again, it might depend on your risk level.
• 24:46
  SPEAKER_03: At the higher end of the risk spectrum, you've got to just make sure you've got enough in stocks.
• 24:50
  SPEAKER_02: For me, what I worry about with over-diversification is as as I agree with everything Trevor Trevor said, having a resilient portfolio relies on having different asset classes that are doing different things.
• 24:59
  SPEAKER_02: The only thing I worry about is when you combine lots of different people, eventually you're just holding the index but paying more for it.
• 25:06
  SPEAKER_02: That that's the conventional challenge of over-diversification.
• 25:09
  SPEAKER_02: So making sure that we're still taking active risk in the way that we want to after you've you've incorporated all the different managers, which again is where I think we're not wishing to go back to Polaris.
• 25:21
  SPEAKER_02: What one of the advantages we have is all of our active exposure is through SJP funds.
• 25:26
  SPEAKER_02: There are funds that we then select the manager for.
• 25:28
  SPEAKER_02: So we have all the data, we can aggregate all that data, we can see what our look-through positions are to really make sure that we're not over-diversified.
• 25:35
  SPEAKER_01: Love it.
• 25:36
  SPEAKER_01: So in uncertain markets, let's look at what people can often do wrong.
• 25:42
  SPEAKER_01: Um Trevor, what do you think personally when the market drops?
• 25:48
  SPEAKER_03: Okay, head and heart.
• 25:50
  SPEAKER_03: Um heart is oh my goodness, what's going on?
• 25:53
  SPEAKER_03: Which is you know, it's human nature.
• 25:54
  SPEAKER_03: Yep.
• 25:55
  SPEAKER_03: Um, head is when should we be buying?
• 25:59
  SPEAKER_03: And this is because of all of the different factors that we've tested over decades.
• 26:03
  SPEAKER_03: The single most reliable factor is buy during a panic.
• 26:08
  SPEAKER_03: It works on our numbers nine times out of ten.
• 26:12
  SPEAKER_03: So you think back to the Iran war shock this year, the tariff shock last year, even COVID.
• 26:18
  SPEAKER_03: A big mistake was not to buy during the panic.
• 26:20
  SPEAKER_03: You can't wait till you know everything and everything's okay again, because the market will have risen by then.
• 26:24
  SPEAKER_03: So we you know, we we listen to investor sentiment, uh head tells us it's something we should be doing.
• 26:30
  SPEAKER_03: And I think having that sort of model-based, research-based framework, it really helps improve behaviors.
• 26:35
  SPEAKER_03: Because if again you're a discussion-based team or you're a star manager-based team, you can get much more sucked into behavioral traps.
• 26:42
  SPEAKER_03: Whereas if you've got something saying, Remember that quiet bit of research you did, which showed that nine times out of ten you should be buying, it changes the whole team's behavior.
• 26:51
  SPEAKER_03: So, my team, when there's a big panic, they're they're all saying, Is it time to buy yet rather than sell?
• 26:57
  SPEAKER_03: But in the short term, that's almost always right.
• 26:59
  SPEAKER_03: I say in the short term, because you again you uh you've got to be able to distinguish is this a flash crash out of the blue and you're in a bull market, or is it the opening salvo of a bear market?
• 27:08
  SPEAKER_03: But even then, there's usually or almost always a decent tradable bounce, even if a bear market's starting.
• 27:15
  SPEAKER_03: The initial onset is just like a flash crash in a bull market.
• 27:18
  SPEAKER_03: You can you can buy the dip, but it does take some guts.
• 27:21
  SPEAKER_01: So, what do you think, what do people think that um matters but actually doesn't?
• 27:29
  SPEAKER_03: I would argue again, in that short-term moment of a panic, people think too much about the long-term destination and not the journey.
• 27:40
  SPEAKER_03: So a good good friend of mine uh as investment advisor would always say it's the journey that matters for a tactical allocation, not the destination.
• 27:46
  SPEAKER_03: I mean, you know, in ten years' time the market might be double where it is now, but if it's gonna halve in the meantime, that's kind of what you're really trying to capture with that tactical part of your brain.
• 27:55
  SPEAKER_03: So, again, in the panic, there'll be some really convincing story about how the world's going to hell in a handbasket.
• 28:03
  SPEAKER_03: And you've got to put that to one side a little bit and not overfocus on that in the short term.
• 28:08
  SPEAKER_02: I think that's right.
• 28:09
  SPEAKER_02: It's so often that headlines are built on chaos, really, aren't they?
• 28:13
  SPEAKER_02: And and so what people tend to think matters is having a really eloquent story as to how this all plays out.
• 28:19
  SPEAKER_02: Whereas, unfortunately, the boring truth of it is that the correct decision to make, if you want it like down to kind of theoretical terms, the correct decision to make is one that incorporates the thousands of probabilities of different permutations playing out.
• 28:33
  SPEAKER_02: So you'll get one person who's stacking all their chips into one into one area and selling a really convincing view.
• 28:40
  SPEAKER_02: Actually, what you want is someone that says, don't really know what's going to happen.
• 28:43
  SPEAKER_02: There's a number of different permutations.
• 28:44
  SPEAKER_02: We think these are the probabilities of each, and therefore we're doing this.
• 28:47
  SPEAKER_02: I mean, that that's probably the credible answer.
• 28:49
  SPEAKER_03: You gotta be able to hold more than one idea in your head at the same time.
• 28:51
  SPEAKER_03: They're all plausible.
• 28:53
  SPEAKER_03: And quite a lot of the time, our strongest view is to be neutral.
• 28:55
  SPEAKER_03: Yeah, yeah.
• 28:56
  SPEAKER_03: You've got to pick your battles.
• 28:57
  SPEAKER_03: If it's 50-50, don't play.
• 28:58
  SPEAKER_01: So, what's would you say the biggest mistakes that investors and advisers might make during this period?
• 29:04
  SPEAKER_02: It's always behavior, it always comes back to behaviour.
• 29:06
  SPEAKER_02: Whether that's extrapolation of trends, so both in in upmarkets and down markets, actually, you know, the the the tendency for us to want to extrapolate what's happening, fit a narrative around the data rather than understanding what's truly going on, I think leads people to want to the fear and greed um human nature element, I think, is is the is the classic one.
• 29:29
  SPEAKER_02: So selling as markets go down, which is, as Trevor said, nine times out of ten, a terrible strategy.
• 29:34
  SPEAKER_02: You know, I think probably the most damaging statement investors have made over the last few decades is is always selling when markets look scary, it's persistently causes uh a reduction in returns over the long term.
• 29:47
  SPEAKER_02: You don't want to be complacent, sure, but but nevertheless, trying to sell before trying to sell because markets look scary, or indeed chase markets when they get away, I think are the most persistent mistakes.
• 29:57
  SPEAKER_02: But it's it's always behaviour, it's always human nature.
• 30:00
  SPEAKER_02: When anything uncertain is happening, it's only natural to want to feel in control.
• 30:05
  SPEAKER_02: And how do you feel in control?
• 30:06
  SPEAKER_02: Will you take a decisive action on your portfolio?
• 30:08
  SPEAKER_02: It's you know, link it back to the previous question, actually, in terms of what do people think matters, having a hugely decisive moment of this is exactly the right behaviour because this is what's going to happen.
• 30:17
  SPEAKER_02: Again, really, that's just trying to take control of uncertainty, which isn't possible.
• 30:22
  SPEAKER_02: The only way you can deal with uncertainty is by diversifying and maintaining your long-term time horizon and recognizing that look, you know, short-term market corrections happen all the time.
• 30:33
  SPEAKER_02: It's part and parcel of investing.
• 30:35
  SPEAKER_02: As Buffett said, you know, the stock market is a device for transferring money from the inpatient to the patient.
• 30:40
  SPEAKER_02: You've just got to look for it.
• 30:42
  SPEAKER_02: It's not easy to do, but I think that's the key.
• 30:44
  SPEAKER_03: I totally agree that um again we were talking earlier on about you know tactical strategies for buying dips, which is all very macho.
• 30:51
  SPEAKER_03: But in the end, diversification is the first defense against uncertainty.
• 30:55
  SPEAKER_03: So the fact that you know, for a lower risk investor, you've got bonds and other things, maybe some commodity exposure, whatever it is, um, you've got that diversification built in.
• 31:04
  SPEAKER_03: That that's the first line of defense always is.
• 31:06
  SPEAKER_02: That's it.
• 31:07
  SPEAKER_02: Well, when a market event starts to unfold, it's it's incredibly difficult to add value for the behavioural reasons we we spoke to, you know, because we know we're not very we're not great decision makers, especially in times of stress as human beings.
• 31:20
  SPEAKER_02: But also when markets are moving that fast, liquidity is not very good.
• 31:23
  SPEAKER_02: So you're paying more to trade.
• 31:26
  SPEAKER_02: You're also, given how fast markets move, you know, it's a lot of things investors don't necessarily think of, but when you buy a fund, there's a dealing cutoff.
• 31:33
  SPEAKER_02: It might be 8 a.m., 9 a.m., 12 p.m., 5 p.m.
• 31:36
  SPEAKER_02: These all differ.
• 31:38
  SPEAKER_02: And quite a lot of times, given how the speed of market movements you can put on an order to buy a fund and it doesn't deal till five o'clock, and the price is like 5% different, 10% different from when you put the transaction on.
• 31:48
  SPEAKER_02: So really starting to try and take action during a market crisis, it so rarely works out, in my view.
• 31:54
  SPEAKER_02: I think it's preparation that is the key, that making sure you hold diversification such that the portfolio you've got is resilient to those market shocks in the first place.
• 32:03
  SPEAKER_02: And then you don't have to try and play catch up as much.
• 32:05
  SPEAKER_03: And something that's not spoken about enough, but of course applies massively to Polaris, but also to funds like Strategic Managers rebalancing.
• 32:12
  SPEAKER_03: Yeah, yeah, yeah.
• 32:13
  SPEAKER_03: Okay, so if you're if you're a 60-40 kind of customer in terms of your risk appetite, 16 equities, that that will naturally mean that the portfolios that Robert and I are managing in a bear market will be topping up to 60 periodically.
• 32:26
  SPEAKER_03: And that means that you're not kind of letting your equity exposure fall away to zero, and then when the recovery comes, you can't benefit from it.
• 32:33
  SPEAKER_03: And in the same way, in a bull market, it's it's forever sort of taking profits and recycling the money back into other asset classes in case things turn around.
• 32:41
  SPEAKER_03: So the risk targeting and the rebalancing you get in a multi-asset portfolio, those are two really important things.
• 32:48
  SPEAKER_01: So behaviour versus strategy.
• 32:50
  SPEAKER_01: So if you looked at just behavioural investing, could you explain that?
• 32:54
  SPEAKER_01: Because you hear that a lot, behavioral investing.
• 32:56
  SPEAKER_03: For me, I think more about you can think about it in a strategic context, but I think about it more in a tactical context.
• 33:02
  SPEAKER_03: And behavioural investing is where where you you want to go with a crowd.
• 33:06
  SPEAKER_03: Right.
• 33:07
  SPEAKER_03: You want to put things in your portfolio that have just done well because it looks good.
• 33:11
  SPEAKER_03: Um, you panic when everyone's panicking.
• 33:14
  SPEAKER_03: Um, you know, committee-based investment decision making without any framework is the worst.
• 33:20
  SPEAKER_03: And I saw this a lot from the other side of the table when I was at the investment bank, and I'd meet some investors and they'd have this big committee.
• 33:26
  SPEAKER_03: And the the worst possible outcome is a committee that meets like twice a year and they have a big discussion.
• 33:30
  SPEAKER_03: And what they do for the next six months depends on how that discussion went, who was chairing it, who was in the room, who just read the Financial Times that morning, who always says it's never too late to sell Japan.
• 33:40
  SPEAKER_03: You'd have all these behavioural biases, and you're you're not really investing on the basis of the process, you're investing on the basis of human behaviour.
• 33:47
  SPEAKER_03: And you know, that's not not repeatable, amongst other things, not consistent, not repeatable.
• 33:52
  SPEAKER_03: Different people in the room will get a different outcome.
• 33:54
  SPEAKER_01: Or what's some specific influencer says about a certain investment.
• 34:00
  SPEAKER_01: We saw that within crypto.
• 34:01
  SPEAKER_01: We see it within lots of dodgy investments where people are kind of listening to somebody they think is an expert in it.
• 34:09
  SPEAKER_01: I think one of the most interesting ones recently is from a behavioural perspective, I guess, is SpaceX, right?
• 34:14
  SPEAKER_01: So like SpaceX, obviously listed, incredible.
• 34:17
  SPEAKER_01: Um, but everybody felt like if I don't do it, I'm gonna miss out.
• 34:20
  SPEAKER_03: Yeah, I'm always a bit skeptical about that because uh, you know, um I always like to think, well, there's a reason why whoever owns the shares is is IPO-ing right now, and that reason is not unconnected with the fact that the current valuation is at at issue is 90 times revenue.
• 34:36
  SPEAKER_03: So there's the flip side of an really expensive sort of um Mag 7 and technology sector is of course these guys want to sell you their shares, and you should be a little bit wary of that.
• 34:48
  SPEAKER_01: When clients are panicking, Robin, what can what can advisors do to support the client?
• 34:55
  SPEAKER_02: I think it probably, much like we said with with investments, it probably starts if possible before the crisis starts.
• 35:02
  SPEAKER_02: I think setting expectations and preparing in advance, it sounds boring and it's it's really difficult to do, right?
• 35:08
  SPEAKER_02: Because you're trying to sign a client up, you're trying to encourage a client to invest.
• 35:11
  SPEAKER_02: The last thing you want to do is say, Oh, by the way, you know this could go down quite a lot, it's hard to do.
• 35:15
  SPEAKER_02: But I think when I observe successful client journeys, the advisors that have spent the time with the financial coaching element of the plan, making sure that you know the client is aware that prep of the preparation, putting in the groundwork to make sure that you can make good decisions in those environments, that's really important.
• 35:34
  SPEAKER_02: I think clients, again, everyone's different, but if you had to put two broad profiles on it, you'd say there's kind of fact-based clients and then story-based clients.
• 35:44
  SPEAKER_02: So making sure you're appealing to the right clients.
• 35:47
  SPEAKER_02: It comes back to as always, knowing your client.
• 35:49
  SPEAKER_02: I think you can spend a lot of time speaking to a very narrative person about yes, but 90% of the time, this it happens, it doesn't really land, doesn't really feel anything, but yeah, I but I I might lose my savings here.
• 36:00
  SPEAKER_02: So I think you've got to speak the right language, but make sure you're tailoring those messages to show people the odds.
• 36:05
  SPEAKER_02: Because really, yeah, any logical person that sees the charts that we see, which shows, well, look, no matter what's happening, if you stay invested for 10 years, your returns are going to be normally more than 100%.
• 36:17
  SPEAKER_02: You know, any anyone with those statistics at hand would think, oh yeah, what's happening now is irrelevant, you're right.
• 36:22
  SPEAKER_02: But making people feel that is is the is the challenging thing.
• 36:25
  SPEAKER_01: Yeah.
• 36:25
  SPEAKER_01: So safety, feeling safe.
• 36:27
  SPEAKER_01: Yeah, feeling protected, feeling secure, you're in you're in the best hands.
• 36:30
  SPEAKER_02: And and even better, you know, investment does funny things to people.
• 36:34
  SPEAKER_02: If you went into the supermarket and you saw that they had a widescreen TV going into the World Cup as we see at the moment, if that TV said on it, this is now twice as expensive as it was last week, you wouldn't think, yeah, buy it, buy it, buy it, it's gonna go up again.
• 36:48
  SPEAKER_02: You'd you'd think you'd think the opposite.
• 36:49
  SPEAKER_02: You go in, you see a TV half price, you think you're gonna invest in that.
• 36:53
  SPEAKER_02: Invest in it, you're gonna buy that.
• 36:54
  SPEAKER_02: If if we can get clients to think of investments in the same way as when markets go up, actually I'm maybe not that interested.
• 37:00
  SPEAKER_02: When markets go down, right, I'm interested, I'm getting things on sale.
• 37:04
  SPEAKER_02: It's such a uh a more healthy attitude towards savings and investment, and I think it makes a big difference.
• 37:08
  SPEAKER_01: Do you have some experts in St.
• 37:10
  SPEAKER_01: James's place that can do that on behalf of the advisors, for example?
• 37:12
  SPEAKER_01: So they could the advisor could just just send out a nice video or something that's been recorded by the team.
• 37:18
  SPEAKER_02: The number one thing we do when a market crisis starts to occur, like take Iran this year, whether you define it as a market crisis or otherwise, it's a significant event.
• 37:25
  SPEAKER_02: The first thing we do is go into communication mode.
• 37:28
  SPEAKER_02: Yeah.
• 37:28
  SPEAKER_02: Before we even think about the investments necessarily, the first thing that's going to jeopardize client outcomes beyond anything that we do from a control perspective or a decision-making perspective, is them feeling like they want to exit the market at the worst possible time.
• 37:41
  SPEAKER_02: So the first thing we do is communications, making sure that we're communicating with advisors through podcasts, through webinars, and then also creating content that they can share with their clients.
• 37:49
  SPEAKER_02: Because I think, yeah, it's so important.
• 37:51
  SPEAKER_01: I think the speed of getting that message across to them as well is just so important as well.
• 37:54
  SPEAKER_01: And it has to be digestible.
• 37:56
  SPEAKER_01: Um, definitely does to be digestible.
• 37:58
  SPEAKER_02: Yeah.
• 37:59
  SPEAKER_02: And so we we try and give that the point of having all these different forms of content, again, podcasts, webinars, what have you, is recognizing that all clients are different.
• 38:07
  SPEAKER_02: So we've got to speak their language.
• 38:08
  SPEAKER_02: So, however, you know, really our our job is to provide advisors to be able to deliver a great service and a great message.
• 38:15
  SPEAKER_02: So we've got to give client advisors a choice of how they send that message.
• 38:18
  SPEAKER_02: So it's weah we try and put out quite a lot of content, I would say, at times of market stress.
• 38:23
  SPEAKER_01: Yeah, and uh what they are putting out is the right message, yeah.
• 38:27
  SPEAKER_01: Of course, 100%.
• 38:28
  SPEAKER_01: Great.
• 38:29
  SPEAKER_01: Um, Trevor, what separates great advisors and investors?
• 38:32
  SPEAKER_03: What you know yeah, well, I think having a cool head is really important as an advisor, as an investor, um being able to articulate a process so so there are no surprises, you know.
• 38:46
  SPEAKER_03: So um that's important.
• 38:49
  SPEAKER_03: Um and I've worked with some great investors.
• 38:51
  SPEAKER_03: I've been very lucky, actually, the sort of people I've I've been involved with.
• 38:54
  SPEAKER_03: But um, for example, at Fidelity, I was working with Anthony Bolton, who's like the big stock-picking guru of the time.
• 39:00
  SPEAKER_03: Great, I have great uh respect for Anthony.
• 39:02
  SPEAKER_03: But one of the things Anthony has said that always struck me as interesting was his when when he would start investing in a company before he'd fully done the research.
• 39:11
  SPEAKER_03: There'd be something about hearing, and often it was small and mid-sized companies that people maybe didn't know.
• 39:16
  SPEAKER_03: There's something about this story or the management or something about it that he thought looked pretty good.
• 39:20
  SPEAKER_03: He hadn't had time yet to do the research, but he'd buy the first tranche of shares.
• 39:25
  SPEAKER_03: And then when he got a bit more time, he'd do a bit more research.
• 39:28
  SPEAKER_03: She's shaping up pretty good, he'd buy some more.
• 39:30
  SPEAKER_03: And and he'd actually end up starting that that process very early when it was only a kind of fringe idea.
• 39:36
  SPEAKER_03: And by the time everyone loved the company, he'd put a big position in it.
• 39:40
  SPEAKER_03: And the same on the way out, like your first sort of spot of rain on the cheek, sell a bit.
• 39:45
  SPEAKER_03: I haven't got time to work out what's going on here.
• 39:47
  SPEAKER_03: That profit warning worried me, but I'm going to just celebrat now.
• 39:49
  SPEAKER_03: And I think that incrementalism is quite interesting.
• 39:52
  SPEAKER_03: Um, that you're kind of you're b you're weighing up competing possible future scenarios and you're weighting your portfolio towards them as they get more likely or less likely rather than falling in love with a particular story.
• 40:05
  SPEAKER_03: And like you, I'm suspicious of very strong thematic story-based investing because people tend to stick with the story too long.
• 40:13
  SPEAKER_03: And when it goes wrong, they double up, they buy the dip, they buy the dip, and they don't realise until later on actually there there's a recession or something's changed.
• 40:21
  SPEAKER_01: Okay.
• 40:22
  SPEAKER_01: How about yourself?
• 40:23
  SPEAKER_02: Again, I'll probably come back to behaviour again.
• 40:26
  SPEAKER_02: In in some ways, uh uh in in in life more generally, self-discipline and self-reflection just very important skills, aren't they?
• 40:34
  SPEAKER_02: And I think within investment and within advice, that's that's really true.
• 40:40
  SPEAKER_02: The the the more the more we succumb to our natural uh human instincts in investment, ultimately it very rarely works out well.
• 40:49
  SPEAKER_02: So yeah, the the the the more you can contextualize, the more you can be self-aware, the more you can be aware of I'm feeling like this, but the actions I need to take is this, the better, I think.
• 41:00
  SPEAKER_01: So you think people are their own worst enemy?
• 41:03
  SPEAKER_02: Unfortunately, I think that's probably the case.
• 41:04
  SPEAKER_02: The thing is, it it's not a massive surprise, is it, in investment?
• 41:07
  SPEAKER_02: You know, people eat pizza and sweets all the time, not because they think it's good for them, because to uh as do I, just to make that very clear.
• 41:14
  SPEAKER_02: Um but it's it's the the instant hit of gratification, isn't it?
• 41:17
  SPEAKER_02: It's very hard to to deny that, and I think the same's in investment, to be honest.
• 41:20
  SPEAKER_01: Got it.
• 41:21
  SPEAKER_01: Is AI making anything more difficult for people like you, Trevor?
• 41:27
  SPEAKER_00: Hmm.
• 41:28
  SPEAKER_03: I I sort of I don't think so.
• 41:31
  SPEAKER_03: Um in fact, I think it might actually give give me me and my team more of an edge because I think um the the issue with AI-based decision making is AI is all about correlation and it's never about causation.
• 41:45
  SPEAKER_03: You know, so a friend of mine who's a technology entrepreneur, Japanese guy based in Sweden, he said if you want to understand um uh large language models and AI, twinkle twinkle little, and the AI will fill in the gap for you.
• 42:00
  SPEAKER_03: Um but it doesn't has no idea of the cultural significance of that nursery run.
• 42:04
  SPEAKER_03: It's just seen it lots of times on the internet.
• 42:05
  SPEAKER_03: Um and so what you'll find is that um AI-based quantitative investing is probably going to put too much weight on just correlation, things that have happened, and the biggest opportunities are when those correlations flip or they break.
• 42:19
  SPEAKER_03: So on the one hand, I think if other people are investing on the basis of short-term correlations, it creates better long-term opportunities.
• 42:28
  SPEAKER_03: Um, on the other hand, I think we've always had a bit of an AI slant in in our process because of the models.
• 42:36
  SPEAKER_03: You know, that there is this sort of historical, carefully curated set of indicators of what can help you make a good decision over a long period looking back over decades.
• 42:46
  SPEAKER_03: Um we've always had that sort of mathematical, very quantity kind of core to what we're doing.
• 42:52
  SPEAKER_03: And as a team, all the portfolio management decision makers are also quants, effectively.
• 42:56
  SPEAKER_03: So they know what the model knows and they know what it doesn't know.
• 42:59
  SPEAKER_03: And so I think we've already got a lot of harnessing there of AI type capabilities.
• 43:04
  SPEAKER_03: Does it change from fund manager to fund manager?
• 43:07
  SPEAKER_03: Where we're finding it as a as an asset management company most useful is where we have people selecting uh, for example, private lending deals, and you've got a lot of you know, doorstopper, 600-page documents, decisions have to be made quickly, you're screening sometimes through a large universe of possible things you could invest in.
• 43:29
  SPEAKER_03: And where you're doing that screening job from lots of things down to a few things, I think it can be really labor-saving and helpful.
• 43:36
  SPEAKER_03: Um for me, you know, stocks and bonds, Japan, US, tech sector commodities.
• 43:43
  SPEAKER_03: I don't have like a universe of ten thousand things to get right, and I've got a small universe of things.
• 43:49
  SPEAKER_03: Um and we've got a lot of focus already on what we think of the mathematical things that give us the edge.
• 43:53
  SPEAKER_03: So for us it's not a screening process.
• 43:56
  SPEAKER_03: Um, but for other people it can be really helpful to do their screening.
• 43:59
  SPEAKER_03: Do you think it aliens?
• 44:00
  SPEAKER_03: Will impact your profession, though.
• 44:02
  SPEAKER_01: Do you think you will be impacted by AI personally or the people that are coming into the into it as a career now?
• 44:08
  SPEAKER_01: Should they be cautious that they might be replaced by AI?
• 44:12
  SPEAKER_03: No, well, you know, you could say the same about spreadsheets or um, you know, the the threshing machine or um dot com websites, you know.
• 44:21
  SPEAKER_03: I think this is just the latest round of productivity-enhancing technology.
• 44:25
  SPEAKER_03: Every single time this happens, that there's a lot of worry that this is a the end of humanity and it's it will power up a lot of people to be able to be more productive.
• 44:35
  SPEAKER_03: Obviously, you want to be one of those people who's being powered up.
• 44:38
  SPEAKER_03: Um, but the other people find other things to do.
• 44:40
  SPEAKER_03: I mean, you've got fewer people in this country in the coal mining industry, but you've got YouTube influencers.
• 44:45
  SPEAKER_03: Who knew?
• 44:46
  SPEAKER_03: I mean, I 20 years ago, you couldn't have been explained to me.
• 44:49
  SPEAKER_03: I remember reading an article 20 years ago about how people will pay money to get different costumes for their avatar in a computer game over.
• 44:56
  SPEAKER_03: Yeah, I know.
• 44:57
  SPEAKER_03: Never, never, it's not going to catch on.
• 44:58
  SPEAKER_03: It's billions of pounds like that.
• 45:00
  SPEAKER_01: I know, it's crazy.
• 45:00
  SPEAKER_01: You look at the games like Fortnite, you know, my my my uh my brother at 45 years old still plays Fortnite and explains it all to me when his kids play it.
• 45:08
  SPEAKER_01: The amount of money that's been spent on Fortnite and people buying digital assets.
• 45:14
  SPEAKER_01: Absolutely, it's unreal.
• 45:16
  SPEAKER_01: But then you can't trade them either, can you, in there?
• 45:17
  SPEAKER_01: And some of them are now allowing you to trade them.
• 45:20
  SPEAKER_01: So you'll buy something for a set price and then be able to trade it with somebody else and sell it to somebody within an internal marketplace.
• 45:25
  SPEAKER_02: Nice, nice, nice, nice thing to put your investment skills uh to work on.
• 45:29
  SPEAKER_01: They're doing it with Grand Theft Auto, are they?
• 45:31
  SPEAKER_01: So Grand Theft Auto 6, the new one that's coming out, is a whole complete ecosystem where you can trade with them.
• 45:35
  SPEAKER_01: What makes sense?
• 45:36
  SPEAKER_01: You can build businesses within it.
• 45:37
  SPEAKER_02: But this is a thing to your point, you know, when when when everyone was thinking about how the internet impacts markets, ultimately who's made money from the internet, it's it's people that can sell stuff online in a virtual universe, or ultimately, unfortunately, and this is the most depressing one, it's like advertising.
• 45:56
  SPEAKER_02: It's in the internet has facilitated people to make more money by selling, getting people's attention and then selling it to companies that want to advertise.
• 46:04
  SPEAKER_02: Ultimately, no one really wants to pay for a search engine or or pay for anything else.
• 46:08
  SPEAKER_02: The power is in advertising.
• 46:09
  SPEAKER_02: So this is the same with AI.
• 46:11
  SPEAKER_02: I'm pretty sure it's valuable, I'm pretty sure it's gonna be be a a massive boost to growth somewhere, but who's gonna make the money from it is a massive question?
• 46:23
  SPEAKER_03: If you think about the telecom industry in the 90s or the dot coms, so you know, Amazon obviously is still around, right?
• 46:30
  SPEAKER_03: So somebody some people did use it to a huge effect, but there were a lot that that that were were basically building the infrastructure.
• 46:36
  SPEAKER_02: Which got commoditized.
• 46:38
  SPEAKER_02: And and then exactly, so and all that it is is that the platform isn't the value, it's the people's attention that's the value.
• 46:45
  SPEAKER_02: So where AI goes, uh uh liken it to uh are you a are you a dog man?
• 46:49
  SPEAKER_02: You've got a dog?
• 46:49
  SPEAKER_02: I don't two cats.
• 46:51
  SPEAKER_02: Right, right.
• 46:51
  SPEAKER_02: Have you seen it?
• 46:53
  SPEAKER_02: It's not gonna get it.
• 46:56
  SPEAKER_02: My forehead because one of them took me out yesterday.
• 46:59
  SPEAKER_02: Have you ever given a treat to a dog?
• 47:00
  SPEAKER_02: Yes.
• 47:01
  SPEAKER_02: So when they get a new treat, what you'll find is they run around like mad, very, very excited.
• 47:05
  SPEAKER_02: They're definitely sure it's good.
• 47:07
  SPEAKER_02: It's definitely good, but what to do with it is another thing, and I suspect AI is very similar.
• 47:11
  SPEAKER_01: I love that.
• 47:11
  SPEAKER_01: That's a brilliant way of putting it.
• 47:13
  SPEAKER_01: Um you mentioned like uh the internet dot-com bubble, right?
• 47:17
  SPEAKER_01: That burst.
• 47:18
  SPEAKER_01: We saw that burst.
• 47:19
  SPEAKER_01: Do we do we foresee that happening within our AI?
• 47:22
  SPEAKER_01: And is it going to be an AI bubble?
• 47:24
  SPEAKER_01: Everyone's saying the same thing.
• 47:25
  SPEAKER_01: What do you think?
• 47:26
  SPEAKER_01: You spoke very eloquently about this at the investment conference.
• 47:29
  SPEAKER_02: Did I?
• 47:30
  SPEAKER_03: I didn't mean to be gone to the spot.
• 47:32
  SPEAKER_03: Well, I kind of I had a front row seat the first time around because I was at this American Investment Bank in in from '95 to 2005.
• 47:39
  SPEAKER_03: So the dot com bus right in the middle there.
• 47:42
  SPEAKER_03: And one of the things I used to do was a monthly fund manager survey.
• 47:46
  SPEAKER_03: And in March 2000, we did one, and we I I could decide the special questions.
• 47:50
  SPEAKER_03: I had a whole special section on technology, media, and telecoms, TMT.
• 47:55
  SPEAKER_03: And I ended up calling the report the TMT phenomenon overvalued, overweighted, over soon.
• 48:01
  SPEAKER_03: Published 13th of March 2000, which was actually, I think, the day or suddenly the week the Nasdaq peaked.
• 48:06
  SPEAKER_03: Um and it was just crazy what people were saying about dot com companies.
• 48:11
  SPEAKER_03: And they were valuing them on things like instead of you know price to book or price to earnings or even price to sales, it was price to clicks.
• 48:19
  SPEAKER_03: Haven't got any sales yet, but people are clicking a lot on the website, and you hear that now, and you look at what's happening in the market now, and there's a lot of similarities to me.
• 48:28
  SPEAKER_03: So the way I normally frame it is, is AI a boom or a bubble?
• 48:32
  SPEAKER_03: And the answer is yes.
• 48:34
  SPEAKER_03: It's a boom and a bubble.
• 48:35
  SPEAKER_03: I mean, every boom, every new technology wave has ultimately resulted in a crash.
• 48:41
  SPEAKER_03: Um, but you don't know whether we're in the foothills or at the peak of it, and that's the difficult thing.
• 48:45
  SPEAKER_03: So again, diversification is your first line of defense.
• 48:49
  SPEAKER_03: If you have like a medium-term outlook, you're probably just on valuation ground step away a little bit from some of the more expensive US stocks.
• 48:58
  SPEAKER_03: And you know, the 1999 bubble, you know, it burst after almost a year of Fed rate hikes.
• 49:04
  SPEAKER_03: So in the end, it was an economic cycle downturn, and it took the dot-coms with it.
• 49:10
  SPEAKER_03: We may need to see the same.
• 49:11
  SPEAKER_03: And at the moment, we've got Kevin Warson at the Fed, he's talking about hiking rates.
• 49:15
  SPEAKER_03: The market's expecting a rate hike or two this year, but it's still quite early days.
• 49:19
  SPEAKER_03: So it feels to me that you know the two lessons from the dot-com bubble is you lost a lot of money by uh holding dot-com from March 2000 onwards, but you also missed out on a lot of money by just not being involved through 98-99.
• 49:32
  SPEAKER_03: So I think again, diversification, have a framework that can step away a little bit.
• 49:37
  SPEAKER_03: And tactically, if you can, there will be times where actually it probably makes sense to be more defensive.
• 49:42
  SPEAKER_02: Should investors be cautious, Robin?
• 49:45
  SPEAKER_02: I think investors should there's always a degree of caution that's useful, but it comes back to diversification, doesn't it?
• 49:50
  SPEAKER_02: I think making sure that you're not overexposed to any theme, maintaining a valuation discipline.
• 49:57
  SPEAKER_02: So so again, much like any walk of life, try not to hold too much stuff that's super expensive, try to hold more stuff that's cheap.
• 50:04
  SPEAKER_02: Um I think if you can maintain those disciplines, and if if caution helps you do that, then great.
• 50:09
  SPEAKER_02: Um, but again, long term, there's been almost zero examples in history where over the long term maintaining investment in financial markets hasn't been really, really a really, really good place to be for growing long-term financial wealth.
• 50:22
  SPEAKER_02: So healthy caution, but ultimately I think remain invested.
• 50:26
  SPEAKER_03: And the the the mistakes people can make is just by being over concentrated in one area.
• 50:29
  SPEAKER_03: You know, if I go back and mention I started investing in 1992, I've I've got maintained this this chart I sometimes show of the bubbles I've lived through.
• 50:37
  SPEAKER_03: Japan.
• 50:38
  SPEAKER_03: Japan, you know, Japan in 1990, the the the one square mile around the British Embassy was worth more than the state of California.
• 50:44
  SPEAKER_03: Okay, Japan was 50% of the world index in 1990.
• 50:48
  SPEAKER_03: It's hard to believe it.
• 50:49
  SPEAKER_03: So you had Japan, then you had the Asian Tigers, then you had the dot-coms, then you had China city building phase, which gave them a bubble in the big mining companies, then you had the big bubble in in bonds pre-COVID, and then the bond crash that came after that, and now we're in the Mag 7.
• 51:05
  SPEAKER_03: So every five years or so, there's been a reliable bubble that's made people tons of the money on the way up, um, but could lose you money on the way down.
• 51:12
  SPEAKER_03: And again, if you've been diversified over that period since 1992, you've you've made a lot of money.
• 51:18
  SPEAKER_03: Um, if you've been focusing in or maybe joining the party late for all of those bubbles I've mentioned, you've lost a lot of money.
• 51:23
  SPEAKER_02: And then selling out at the bottom each time as well.
• 51:25
  SPEAKER_02: I mean that that's the thing, isn't it?
• 51:27
  SPEAKER_02: Maintaining investment over the long term and being disciplined, I think it it has to be the long-term strategy of choice.
• 51:32
  SPEAKER_01: Love it.
• 51:33
  SPEAKER_01: So final thoughts then.
• 51:34
  SPEAKER_01: What's the one piece of advice you would give to advisors when building portfolios for their clients?
• 51:39
  SPEAKER_01: And that question's for the both of you.
• 51:42
  SPEAKER_03: Can I go first?
• 51:43
  SPEAKER_03: I think we'll probably have a similar answer.
• 51:44
  SPEAKER_03: I'd say get the risk level right.
• 51:46
  SPEAKER_03: Because you know, only the advisor knows their customer.
• 51:48
  SPEAKER_03: So you know, often they know them very personally, but make sure that you've got the portfolio that's at the risk level appropriate to that customer so that you know when things happen they won't be surprised, they'll understand what the plan is and they'll stick with the plan.
• 52:02
  SPEAKER_02: Yeah, which which which lends itself nicely to prepare, doesn't it?
• 52:06
  SPEAKER_02: Whether that's preparing the right solution to align with the risk profile or whether that's preparing for the inevitable market crash that will come, but investors need to be able to weather the storm throughout.
• 52:15
  SPEAKER_02: I think yeah, preparation is key.
• 52:17
  SPEAKER_01: I love it.
• 52:17
  SPEAKER_01: Well, gentlemen, thank you so much for coming on the Financial Planet Live podcast.
• 52:20
  SPEAKER_01: I've certainly learned a lot, and I'm sure our listeners will as well.
• 52:22
  SPEAKER_01: So thank you very much for taking the time out of your day and talking to us.
• 52:25
  SPEAKER_01: Absolutely pleasure.
• 52:26
  SPEAKER_01: Thank you.
• 52:26
  SPEAKER_01: Many thanks.