Alastair Mundy

In this paper we talk to Alastair Mundy of Investec. He manages their Cautious Managed Fund and UK Special Situations Fund, and is co-manager of the American Fund as well as the manager of the Temple Bar Investment Trust.

Many books have been written by ‘financial gurus’ which encourage the reader to believe that anyone can invest money (and make money). As an aftermath of the 2008 global crisis it was (possibly) easier than ever for investors to make money.

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 paper we talk to Alastair Mundy of Investec. He manages their Cautious Managed Fund and UK Special Situations Fund, and is co-manager of the American Fund as well as the manager of the Temple Bar Investment Trust. “Going back to a young Alistair in 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?”

I am afraid I didn’t even know what a fund manager was when I was a teenager. I wanted originally to be an actuary until I realised it was rather boring and that I wasn’t intelligent enough. Fund management seemed more fun and more challenging. I had a pretty conventional path through university and on to Commercial Union as a graduate. “20 plus years in any industry is a long time, what motivates you daily, yearly and for the long term?”

The fact that after 20 plus years you are still learning so much! “You entered the industry just after the 1987 crash but have survived the Asian Crisis, the technology bubble, 9.11, the global financial meltdown and near collapse of Europe (although this is not necessarily over). Going back over your twenty plus year 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)?”

Yes , I can think of plenty of mistakes! Chasing income in my youth without sufficient due diligence having too much confidence when young, and not holding on to winning stocks for long enough. And yes all those (and more!) led to rethinks. “You are described as contrarian, a manager that focuses on stocks that are out of favour in the market. Firstly the industry talks about value managers, growth mangers, contrarians etc. For the average investor what does this mean? And secondly which ties into the first you look for out of favour stocks – today supermarkets, banks, oil, miners are all out of favour – some of these will come back, some may not. Surely every manager will argue this is what they do, why are you different?”

We are entirely focused on out of favour stocks. Stocks that are unloved and where the majority of investors can only see the bad news. Not many investors take this approach. “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? What is your view, do you feel you need to adapt your style to reflect this new environment?

The style has always been to buy cheap, out of favour stocks. If there is a new environment in which that doesn’t work I had better get my hat. We certainly don’t know all the consequences of QE and given that, it is a bit odd that equities are so high and provide less margin of safety than you would hope. “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?”

Even with a lot of research it is possible to make a lot of mistakes and perhaps the best research on Tesco would have been to walk around their stores? I think these underperformers show the merits of a diversified portfolio and the need to be vigilant about all stocks, even those called ‘blue chips’. “There remains an argument that active fund managers particularly in the US rarely over the long term outperform the index. For personal investors looking at funds what do you feel they need to look at both from choosing active over passive, and more importantly looking at the investment style of an active manager?”

I think history suggests that a number of different styles can work over the long-term. What probably works worse is just jumping between styles as history informs us this is typically done at precisely the wrong time! I think consistency of approach and discipline it its implementation are key. “Connected with the question above. 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?”

You would certainly imagine that size should be a problem. The puzzle is to work out when it becomes relevant for a particular fund and that is probably a function of their style (eg do they invest in small caps, do they deal a lot, do they invest in illiquid assets etc). “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.”

I think the best tip to investing is start young, invest as much as possible when equities look cheap relative to history and hold your nerve. “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?”

The main challenge for investors is always is dealing with the irrationality of the human brain. Emotions can lead to some very bad decisions.

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