Weekly Digest

"Turning 40" - Time to reflect

Jernej Bukovec, CFA

18 June 2018

Today I am celebrating my 40th birthday. I am not sure how to feel about it; jubilant, overjoyed, ecstatic? Perhaps just old?  You can’t help it, but these sorts of moments make you reflect on the past, the present, and what the future may hold. Forty years is a long period, for illustration, if you had invested £1000 into global equities in 1978, you would have £58,800 today.

Looking back on those 40 years, I have spent 12 of them working at Momentum. On reflection, this is more than a quarter of my life; more than half of my adulthood. In a profession that is often regarded as having a high turnover this is quite an achievement in itself and, looking around the office, I am not an exception. Indeed in the investment team alone we have a core of five individuals that have been with the company about as long as me.  I suppose this shouldn’t come as a surprise as Momentum is a genuinely great place to work, with lots of high-quality people, a flat corporate structure and a small office feel with the safety of a strong parent. More importantly, I am part of an investment team that has a firm commitment to investment excellence – a shared goal to be ‘great’ at investing. A team that has the intellectual freedom to do what is best for the long-term is something I greatly appreciate and a key reason I enjoy working here.

There is also a motivation to prove to myself that what we do adds value to our clients. As a long-term investor, you inevitably need to commit time to the investment process to see the fruits of the decisions that  have often been made many years ago.  Anyone can have good performance in the short run, it could simply be luck, but to sustain strong risk-adjusted returns over long periods requires discipline, focus, patience, diligence; skills that separate good investors from the ordinary.  It is this long term and client orientated focus that permeates our culture and informs all of our investment decisions.

One way that we add value to our clients is by sifting through vast investment manager universes and selecting top investment managers for our client portfolios. A good illustration of our value-add through manager selection is the performance of our flagship global equity fund. The success of our best ideas flagship is mainly driven by our skill of selecting excellent managers.  Since the current portfolio management team took over the management of the fund back in March 2009, the fund returned 239% versus 215% for the index net of all fees. This is on average 0.9% more per annum than the MSCI World index and 1.4% more than the iShares MSCI World ETF, a passive global equity proxy. This return places the Momentum fund in the top quintile among its Morningstar global equity peers. The portfolio construction approach of blending managers with different investment styles has resulted in a relatively modest tracking error of 2.4%, one of the lowest among its peers. While 0.9% of outperformance per annum might not seem significant, this return has been accomplished during a period of strong performance in passive vehicles, whereas the majority of active managers have found it challenging to keep up with their underlying indices.  This consistency of outperformance is clearly unusual and is a testament to the team and our investment approach.

So, on reflection, I feel quite good about turning 40, I am proud of what we have achieved so far as investors and I am optimistic that the best years are still ahead of us. I am looking forward to continuing to grow as an investor and adding value for our clients and improving their financial wellness. So, with that thought, have a great day and cheers!

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