Interview with Ross Hollyman, Fund Manager at Sabre Fund Management

His career path could have been different as the alternative was engineering science which would have led him into Formula 1!

There is a strong argument that 2008 was a unique point in investment history where everything was so beaten up that to make money was very easy. Now as we return to a ‘new norm’ making money is much harder.

If we step away from the crowd, money can be made but like everything it is about identifying the right stock. Investing in Woolworths because it was cheap doesn’t necessarily bring success. As we have seen with the likes of Tesco’s there is much more to a stock than meets the eye and the reality is that for most people it is much easier to allow an expert to choose the investments.

This in itself brings challenges. How does an investor choose the right fund? Investment houses tend to promote their star funds, or last year’s success and for investors it is very easy to invest based on last year’s performance.

The danger of a star manager is all too apparent when that manager leaves because the fund is their fund and without them what happens?

At we catch up with some of the leading managers in the industry to understand how they approach investing.

In this interview we talk to Ross Hollyman of Sabre Fund Management. He manages their Sabre Global Opportunities and Sabre Global Value and Income Fund.

To read our review of the Global Value and Income Fund click on the link below.

Sabre Global Value and Income Fund – Click Here “Going back to your teenage years, did you always want to be a fund manager? If you did what route did you take and when did you first assume your first management role? If you didn’t why did you end up in fund management and again what route did you take and when did you first assume your first management role?”

Ross explained that going back in time to 1987 he took part in a competition to be the best stock picker. He enjoyed it, and was doing well until October 1987 happened. What that sparked was the question why and led him to do actuarial science at university.

The degree was significantly harder than Ross expected but he feels there are very few better ways to get a grounding in finance than via this route. Fund management wasn’t necessarily a role he knew about and he started his career with Save and Prosper in the actuarial department before moving to Flemings to work alongside Mark White who had just returned from Asia (and is a leading Asian Equity Specialist).

His career path could have been different as the alternative was engineering science which would have led him into Formula 1! “With over 20 years’ experience in the industry, what motivates you daily, yearly and for the long term?”

Ross explained that all his money is invested in the funds he manages, he takes no salary. Therefore, his motivation is to protect and grow his money. This aligns him alongside his clients as both interests are matched.

He also explained that he is competitive and wants to do well, so not only does he want to do well, he also has an interesting job and enjoys doing it.

Ross also added that the job is evolving, it is not static. He looks to employ the latest thinking in everything he does but he knows that it is always changing. Many of statistics he learnt at college are now outdated and the power of computers changes things. This is also a motivation to ensure he is constantly moving and not being left behind. “With nearly twenty years fund management experience you will have experienced the dotcom bubble, 9.11, global financial meltdown and near collapse of Europe (although this is not necessarily over). Going back over your career can you think of any major mistakes you made, what you have learnt and how has this been used to mould what you do today (and going forward)?”

Everyone makes mistakes but clearly it is how you learn from them that is important. Ross explained how it is very easy to be seduced by the ‘new new’ thing, to take the long shot. When you look back at them you can see that very few of them actually worked. So not only has he been seduced by this but he is also now a non-executive director of a cash shell company, where the former directors spent the money and there was no end delivery. As he said he has seen both sides of the coin!

What he has learnt from this is to avoid blue sky businesses and focus on cash generative businesses. He also likes businesses where they have products that people are willing to pay for. He used the example of ARM where several large technology companies paid ARM Engineers to integrate their systems into theirs. He also explained that having a management team who are aligned to the shareholders is also important… do they invest in the company or not? “How would you describe your style of management? The industry talks about value managers, growth mangers, contrarians etc. For the average investor what does this mean? And how does your style make you stand out as different in the market?”

Ross explained that his style is Value.

However talking about how he stands out he answered this very simply by saying ‘he is just the fund manager’ – this is not being arrogant or flippant. The point being that it is very hard for him to answer. The screening system they employ is different but it is for the person choosing the investment to decide whether there is significant difference to invest with him. “Many commentators say that the global financial crisis was a unique event, and a game changer going forward. Particularly as we don’t know the consequences of QE, how long we will remain in a low interest environment etc. If this is the case then everything we have learnt about investing goes out of the window because we just don’t know what will happen? There is also an argument that any manager could make money in the last five years, however going forward only the good managers will shine. What is your view, and do you feel you need to adapt your style to reflect this new environment?

Ross has heard many times ‘it’s different this time’ – his view is that it is never different. It might be a bit different. QE is something that has been done before in the thirties but adjusted for the 21stcentury. The risk is if it becomes the weapon of choice.

What is a consequence of QE is that it has dampened volatility and he believes this should normalise at some point, and investors need to be aware of this.

He doesn’t feel he needs to adapt his style of management to reflect what has happened he just needs to be aware. “For personal investors we have seen the collapse in share price of banks and now supermarkets, does this highlight that without the research it is much harder for them to invest directly in shares?”

Ross explained that fraud is fraud but a collapse in share price because a company is out of favour is the risk of investing. His argument is that individuals must take responsibility for their actions, we are in a society where we need to blame anyone but ourselves. The key is to do the homework and look at all the facts, and more importantly accept that you might get it wrong. “Some funds have become victims of their own success where the size of assets impact future returns. Do you believe size can be a problem or that a good manager can deliver consistent outperformance over the longer term irrespective of the size of their fund?”

In short the answer is yes it can, Ross explained about an investor who had invested in a fund when it had £100 million of assets and delivered fantastic returns. It had the liquidity to invest but its success drew in more money and it grew to £3 billion. The fund had become too big for the manager to continue to deliver. His view is that managers should be prepared to cap the size of the fund to protect those investors who have been there from the start.

He explained that for him what is important is not only the relationship he has with his clients but also managing money on a daily basis. With this in mind there is a natural barrier as to how big the fund can be and he is very mindful of this. “Shortermism remains a problem, investors want returns quickly and in reality they sell when the market is falling and buy when the market is rising. How long should investors look to hold investments and what would be your best tip to investing.”

The answer to this I found really interesting and slightly curve ball. Ross explained that investment in general projects tends to be over optimistic. Even a simple extension to a house can take twice as long as expected and cost twice as much. This applies to companies and investments.

Ross feels you need to turn this around and look at it differently. What alignment does the person managing the money have with the investor? Are they just trying to sell them something or are they looking to get them to invest alongside them. This is the key, for funds if the manager invests all their money in the fund then their interests are clearly long term and aligned with the investor, if not then what motivates them to work with the client.

He mentioned about a fund manager who voted against replacing the board of a badly run company, when asked why he did it his response was ‘calm down it’s not my own money’. If there is no alignment then they are unlikely to work for their clients. And likewise if you are buying shares in a company do the directors own share?

In all of this the point is about being realistic, finding an investment for the long term and not being over optimistic! “Finally, with a crystal ball to the future (which of course we don’t have), what do you feel are the challenges facing investors, and in reality do you think these have changed or will change?”

Very simply Ross explained that financial assets are not cheap and especially bonds, he explained that equities are cheap relative to bonds but they are not as cheap as they were. That is the challenge for investors now. Of course that will change but that is the challenge right now!

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