Mark Williams

In this paper we talk to Mark Williams who works for Liontrust. He manages their Asian Income Fund.

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 Mark Williams who works for Liontrust. He manages their Asian Income Fund. “Going back to a young Mark 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?”

When I was very young I loved mathematics, particularly probability, and spent a lot of time playing with numbers. I also enjoyed English as a subject.

I thought that a good combination of logic and verbal reasoning would be a law degree, and so I spent three years studying law. During the university holidays I worked for both solicitors and barristers, but saw few happy lawyers younger than their mid-thirties, which then seemed to be a lifetime away. I also did a work placement at Jupiter one summer, and investment appeared a far more interesting way to make a living.

Having decided that I wished to pursue a career in Fund management I was advised to start as a sell-side analyst, so that I could get a better view of both sides of the fence. I went to the library and, using Crawfords Directory of City Connections, wrote to every company from A to M, leaving myself the second half of the alphabet to try a different tack if had no takers. In fact I got a job at James Capel Investment Management, working in their International private client business which managed discretionary global portfolios. I was given my own clients after three years there. “With over 20 years’ experience in the industry, what motivates you daily, yearly and for the long term?”

The job is a very clear one: I am paid to analyse and research what I think is one of the more interesting and dynamic parts of the world, the Asia Pacific region, and make decisions based on that analysis. The motivation comes from recognition that you are getting it right (when you do), which for good or bad is like having daily exam results. “With over twenty years fund management experience you will have experience 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)?”

The worst mistake I have made was in 2010 when, having believed that the Eurozone was too important to be allowed to fail, I changed my mind and thought that in fact the politicians involved might be incompetent enough to accidentally do so. Even though all the positions I held were in Asia, European events were the biggest drivers for the portfolio at that time. I altered my positioning at exactly the wrong time, becoming more defensive, and in doing so locked in significant underperformance which would have righted itself if I had maintained my stance. Effectively I turned what could have been alright into a very bad year.

This was significant recently in giving me the strength to hold on to positions in Chinese midcaps that we have held for some time, and which performed very badly in the second quarter of last year (2014), when many of our competitors were calling for China’s demise. I couldn’t see how that could come about in the short term, and holding onto those companies has since led to some great performance. “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?”

Pragmatic. We understand that a single style will not outperform throughout a cycle, and adjust our positions to reflect what we think will be the drivers of Asian equities for the next six to twelve months. “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?

One of the certainties in life is that this time will not be exactly the same as the last time, and I see one of the core aims within our process is that we should ‘make things as simple as possible, but no simpler’. We look to identify what we believe will be the drivers of equities over the next six to twelve months, then find out which areas will be most impacted. We have to simplify things in order to use history as any guide within this process, but we need to compare the correct factors to similar historic events. If we oversimplify there is no reason why our comparisons should be instructive.

In the current environment things have changed and we do not know what will happen as QE unwinds, but we have some strong ideas as to the effect of keeping interest rates low for some time, and potential government reactions as events unfold in different ways. What we have learnt about investing still holds, but we have to work out the environment within which we are operating to be able to use that knowledge.

The heart of our process is about looking for companies that will function best in the environment in which we find ourselves, and to these ends style is more a result of that process rather than a pre-determining investment factor. “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?”

I think it would be very hard to invest well without research, but I would be surprised if that has not always been the case. This research does not have to come from someone else, however. I believe a personal investor could easily do their own research from the report and accounts of companies, spending eight to ten hours a day analysing the publicly available information and have as much likelihood of success as a professional. If they want to spend a significant amount of time doing so I would never advise against it, but most people I speak to work hard enough to earn their savings leaving little room to take on the job of investing themselves. “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?”

While there is some data to question whether the majority of active fund managers outperform their index over the longer term, the certainty is that passive funds will underperform, and I do not think that this is always realised, leading to false comparisons. Even though I am a believer that some fund managers will outperform, investors have to be very clear in what they are investing. I would say there are three main things to look at:

  1. They should make sure they keep a close eye on any changes to the management team, as if they have chosen to invest with a manager in the belief that they can continue to produce historically good returns, then it is important that that manager remains in charge of the fund.
  2. They should also be very clear what they are investing in, as the fund’s remit can vary significantly within the same peer group. Within the UK listed Asia Pacific peer group there are funds that hold almost 40% in Australia, others that hold nothing, largely due to their choice on benchmark, and this will make a significant difference to returns.
  3. Finally investors should be very careful to take the most efficient route for their chosen fund, avoiding unnecessarily paying hefty upfront fees.

Outside of this the longer they can hold a position without succumbing to the temptation to tinker with positions after poor short-term performance, the more likely I would think they are to succeed. “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?”

I think that liquidity is the most important factor, and for a daily dealing fund it is important that there is the ability to fulfil the needs of flows, either in or out, without significantly altering the fund. This means that there is no reason for a fund with good performance to find that constrained as the assets rise, as long as the same type of stocks are available with sufficient liquidity. “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.”

For equity investments the longer the time horizon the more likely investors are to see significant returns from their investments. I personally look at my longer-term, up to pension age, as a safe bet with my entire exposure in Asia. My shortest time horizon would be 5 years, which I believe would be a reasonable time for equity investments. “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?”

Currently for investors the biggest challenge from our point of view is changes in the regulatory environment. The changes will alter the entire way that the fund management and broking industries function. While I am confident that the industry will emerge from the transmission stronger, there will be a very difficult period when there is little clarity in the situation and the costs of implementation are significant.

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