The Value Perspective Podcast episode – Meet the Manager, with Nick Kirrage

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TVP Meet the Manager Series – Nick Wood hosts Fund Manager Nick Kirrage - The Value Perspective | Podcast on Spotify

NW: I am Nick Wood, head of investment fund research at Quilter Cheviot, and it is my great pleasure to have been invited to present this podcast episode, which is part of a series celebrating the 10-year anniversary of Schroders’ Global Value Team. Nick, you and I have known each other for a very long time, we have had so many manager meetings and today I thought we would take as our theme the idea of change – so thinking about what has evolved over the first 10 years of the value franchise and looking out to what the next 10 years might bring. Before we do that, however, let’s just to hear a little bit about your journey into the investing world – not least, how did you end up so wedded to the very distinct part of it that is ‘deep value’?

NK: Thanks, Nick. As you say, we have crossed paths many times but I haven’t seen you for a little while so it is lovely to see you again and to be here and able to chat about this 10-year anniversary ... although, it is funny – we talk about the 10-year anniversary of the value team but I always think of this as ‘the latest 10 years’. The largest part of my time on the team was co-running, with Kevin Murphy, the UK Recovery fund, which has just celebrated its 50-year anniversary – so we are ‘standing on the shoulders of giants’ somewhat in terms of the value team itself.

I am sure we will get into how everything has evolved – and how, at the same time, it hasn’t changed at all – but I personally have been at Schroders now, man, and boy, something like 22 years. I did not really start down a path that would naturally lead to investing – I was doing engineering at university and so seemed much more likely to end up in a workshop somewhere in Rolls-Royce, rather than rating Rolls-Royce shares as a ‘buy’ or ‘sell’ for Schroders. Still, I think it was something I had always been really interested in and, at some point, I kind of caught my own behaviours at university.

There is this kind of apocryphal story about how I took my university grant check and did the very student thing of drinking half of it – but then I invested the other half of it in the stockmarket. It was in all the wrong kinds of investments – this was the late 1990s – but it meant I was reading the FT and doing other stuff I don’t think I realised was a bit strange until I looked around and saw the other engineers weren’t doing it too. So it was a bit odd in that regard but, instead of how machines worked, I was just really interested by how industries and businesses worked – enough to get off my backside and apply for a couple of internships, of which I was lucky enough to get the Schroders one. And, in some respects, the rest is history, really.

A most unusual piece of investment advice

NW: You mentioned you took over the Recovery fund just five years, I believe, after you graduated –yet you and Kevin were taking on a very established franchise. Looking back to that period, what was it like taking on such a significant role? What are your memories from that period?

NK: I mean, it is so strange because nowadays, for any job we ask anyone to come in and do, even as a graduate, we expect this extraordinary CV – this incredibly, fully-formed narrative about how you have always wanted to do X since you were two years old and how your whole life has been organised around that. And the reality, I suspect – as the vast bulk of people of my vintage or older will know – is you can create a narrative but that is not how life works. In some respects, you don’t really know what you want to do – and you have to do a lot of things you don’t want to do in order to work out what you do want to do.

And, actually, it was thus with my investing career. When I came into Schroders – my internship was in 2000 and I started fully in 2001 – it was right around that September-11 period, which made things slightly weird. It was autumn 2001, Michael Dobson started as CEO, Schroders had just sold the investment bank and it felt like a moment of change – and I came in and didn’t really have an idea of what kind of investor I wanted to be. And I was a very bad investor in lots of different ways and made all the mistakes you would expect a young analyst to make.

But, actually, people took an interest in what I was doing and it was recognised that I had an aptitude and a keenness to learn – and Kevin and I came together quite quickly around that period. And we were identified as both having that keenness to learn and to get better – and I don’t think that has really gone away. I don’t have any superpowers in terms of individual skills but I think both Kevin and I have this desire or hunger to try and get better. And so, as part of that, we were handed this fund where ... it is pretty extraordinary really – I mean, these days, everyone wants 15 years of experience before they give any fund manager any money.

I suspect there was a feeling the UK Recovery fund was a kind of ‘grand old dame’ of the UK fund stable – a lot of it was internal money – and we would have to go quite hard to screw it up! It is a deep value fund but, nonetheless, we were absolutely cock-a-hoop when we were given that fun to run by Ben Whitmore, who handed it on to us. I am sure many listeners will know the story about how we sat down with him, all eagle-eyed, with our notebooks out and like, How do we run this fund? And he just said, Look, I am going to let you figure this out for yourself – but I will give you the one line I was told when I took on this fund.

And that was, If you do not have one company going bust every year in this fund, you are not taking enough risk and you are not going to generate the performance. And Kevin and I just did not really grasp how crazy that was because we had only been in the industry five or six years and this was our first fund management opportunity. It was only with hindsight you realise that is just not a thing anyone usually says. People talk about the benchmark, not looking stupid, trying to outperform, clawing for small performance-relative – but nobody says that. And actually, it was one of the most influential and informative things anyone ever said to us and set us up in terms of the philosophy and approach we had to trying to generate performance for clients.

Team-building and the cake that’s never baked

NW: No, I cannot remember another manager saying anything like that – but I guess the rest is history, really. So when I am looking at the value franchise as a whole and doing my analysis, I guess it is the team that, for me, is absolutely key in terms of my conviction. Tell us how you went about setting up the Value Team in 2013 – how were you thinking?

NK: Well, this is where legend runs into the reality of what actually went on. I mean, there has always been a very strong value thread or theme that ran through part of the old Schroder UK equity department, which had been a very big deal back into the 1990s and the Jim Cox days and the Enterprise fund and all these kind of funds that have gone down in history. So there was a kind of value approach but it had been quite weather-beaten by that [dotcom] period at the end of the 1990s and early 2000s – before we then saw it come back. And so, at the time, there was this hard core of investors, who will be household names to many people who follow value in the UK – so Nick Purves and Ben Whitmore, who we are still in close contact with – but they were starting to move on and do different projects themselves.

And Kevin and I were seen, I guess, as kind of the next vanguard of that approach. We had learned a huge amount from those two particular investors – we had taken on the Recovery fund in 2006 when Ben had left, and when Nick left in 2010, we took on the Income franchise – and were running what was a wonderful and mature, albeit legacy, UK value franchise at that time. To come back to Ben’s line about the importance of owning companies that go bust, nobody was doing that – and it wasn’t just that they were not doing that in the UK, they weren’t doing that anywhere.

So Kevin and I were very excited about this idea of trying to do it on a global stage and launch a global recovery fund – and part of that period between 2010 and 2013 was us bringing that fund to fruition. They say the only two things you really get to control as a fund manager are, one, picking your benchmark; and, two, picking your start date – and we managed to pick a start date at the beginning of what would turn out to be pretty much the worst 10 years for value in its entire history! So, once again, we confirmed that market timing is not one of our skills – but it was an opportunity to branch out .

As part of that, we brought with us someone we thought was a very talented investor and who, again, had been an analyst in the UK team but was ready to take on a broader role. That was Andrew Lyddon and he has gone on to become an absolute core part of our franchise and a very important person for us. We also looked across the floor and were given a wider remit, which was a huge stroke of good fortune – and you can be as hard-working or conscientious or whatever as you like but the truth is, we all need a bit of luck. And our bit of luck was that in, 2013, Peter Harrison joined Schroders as the then head of equities – and he believed in value. In fact, he had recruited our previous boss, Nick Purves, to take his value skills and join him at RWC!

So, in that individual, we had someone who really believed in the value approach and who wanted us to develop it further and to develop a style-based franchise at Schroders. So we did that in 2013 and we brought together a couple of other investors, Ian Kelly and Jamie Lowry, who sat on their own doing value – Jamie was running a European value fund and Ian was running a global income fund. We brought them together to create this team and, while Ian and Jamie both moved on to go and live up north – there was no way we could compete with them being closer to their families! – that core and that ethic remains. And I think, if you got Ian and Jamie here today – and we still speak to them – they would say the team still looks very like it did back then in terms of philosophy and approach.

NW: We have talked many times about the behavioural side of investing so how have you developed and improved your own learnings and processes in order to get the best out of a group of people who are all focused on the same end-result?

NK: Well, the question we are constantly asking ourselves is, are we getting the best out of people? And the truth is, it is a cake that’s never baked. You know, just as you are thinking it looks wonderful and smells great, suddenly one side of it flops down a bit or, you know, the souffle is collapsing and then it is, What do I do? I have to work on that. So you have to constantly try and be on top of that – and I would say there is never a moment where we think, ‘We’ve done it’ or ‘Everybody’s happy’. One of the things we talk a lot about, for example, is how do we disagree agreeably? How do we make sure there is creative conflict in the team? But creative conflict can still be conflict so you have to try and constantly work at that.

There are elements that are very important and you have to guard continuously, such as independence and independence of thought – and within the team, but also outside of it, we are extremely well supported. And one of the things we have at Schroders – it is isn’t unique but it is very special and you hardly see it anywhere – is a boutique mindset but within a big investment firm that can support us. So, yes, there are lots of value boutiques out there but the problem is they kind of come and go. They are subject to enormous commercial pressures, they feel that and they become very short term – and very short-term performance-led.

We are very lucky in that we work for a bigger firm – we are probably one of the biggest value boutiques in Europe, if you want to see it that way – but we have a parent company that has been doing this a long time and has the experience to be able to ride out difficult times, such as 2020, which was apocalyptically bad in terms of relative value performance over a short period of time. Now, we don’t look at that and our clients tend not to look at that but, when you are running a large commercial enterprise, as Schroders is, you would imagine our bosses do look at that. But at no point does anyone pull us into a room and go, Could you start buying tech stocks, or whatever. That is very special – and, in itself, it becomes part of the opportunity for us.

We are supported, we are invested in and one of the really interesting things about the last 10 years is, if you look at the number of people in our team, it has more than doubled – despite it having been the worst 10 years for value. And that is because, when I go to the business and say, Now is the time to invest in this – exactly when no one else is doing it – because this is enduring, they kind of say ‘yes’. So there is independence, yes, but also resource and those two things are important. Then a third thing I think is absolutely essential, which we touched on at the start, is a kind of paranoia about needing to get better – about needing to grow and develop constantly while asking yourself, What do I do that I should never change because it is absolutely core to the principles and philosophy of what we are doing?

Also, What is it that we actually do that adds value? And we ask that a lot. And then, What is up for constant evolution? You know, what do we need to be trying and evolving? When you go through our investment process, for example – and process can be quite dry so I don’t want to spend all my time talking about that – but one of the things that underpins it is, philosophically, I think, if you got Nick Purves in here or you got Jamie Lowry in here, neither of whom are with the team any more, they would fundamentally recognise pretty much everything that is going on and it would feel, you know, like a nice, warm coat.

But if they looked at how we were doing it – the day-to-day, the modelling, our seven ‘red’ questions, the discipline, the rigour and how we have evolved that into the tools we use and how we think about everything – all of that would look kind of new to them. They would recognise the P&L and the balance sheet and the cashflow, of course, but they would ask, Why do you do it that way? And why does everyone use the same thing? And how do you share that? That is the power – this constantly learning and evolving. Those are all elements that are really intrinsic to great teams over time – and we want to be a great team because that is what our clients deserve.

When to change – and when to stand your ground

NW: Picking up on that theme of evolution, as you say, the Recovery franchise has been doing what it does for 50 years but, over that time, our industry has seen lots of changes – you might think of big data; ESG is a factor people were not thinking about 10 years ago, in the most part; even AI, which will eventually take all of our jobs! Have any of those – or any other things – led you to tweak your process?

NK: All of those – you have picked out some great stuff there. Take big data – there are a couple of people in our team who are really progressive about this – and I would single out Andy Evans as extremely thoughtful here. We have people on our team, like Andy, who don’t wait to get told, You should think about this – they just teach themselves Python on the train on the way home and then start coding and thinking about big data. There is a part of me that recognises, Yes, Ben Graham was doing this with a pencil and a piece of paper, not a calculator, and at its core what we are doing here, philosophically, is behavioural. So we can always do it that way but, if you want to be a great investor, the days of being able to do it with a piece of paper and a pencil are in the past – I think you are leaving performance on the table there.

So we should be thinking about how we use the data – whether that is in our screening or, more specifically, say, in the base rate tool that Andy has championed and driven. There, we are trying to say, OK, when I am thinking about these margins – rather than just, wise old head, those look about right – what is my evidence for the conclusions I am drawing? What is the peer group of companies I am going to use? How do I pull them in and look at the average margins? Oh, wow! The average margins for those 20 companies I see as the industry have been coming down over the last 10 years – so what does that mean? What should I do with my normalised numbers? So big data is really, really important and a key part of what we have been doing.

As for ESG, even for us as a team, it is a not divisive issue but it is a contentious one – the extent to which some of these factors are ethically important enough for us to really understand our role in the capital chain. And just saying, Our clients don’t ask us to do that, is not enough. Some of them don’t ask – and, ultimately, it is not our money and we do what our clients ask us to do – but a lot of them do want us to take a view and they do want us to do better. Our industry is responsible for trillions and trillions of pounds-worth of capital and our influence is absolutely crucial in terms of driving where investment goes – and I think making sure we are ‘on the right side of history’ in that regard is hugely important.

And I know some people on our team would kind of squint as I say that! But I don’t mean this in the sense of manipulating, I just mean it in the sense of trying to do what we think is in the right interests of our clients in the long term, while at the same time recognising they have invested with us for performance – and, let’s be clear about this, there are times where those two things conflict. If you are BP, do you make more money by investing in an oilwell or a solar farm? In an oilwell – at least, you do today. So there is a driver there on how we balance that up and it is not straightforward. It is not black-and-white. It is very, very hard but it is also really, really important.

Your point about AI, meanwhile, is really interesting. I mean, I am not skilled or educated enough – despite all I read on the subject – to really opine on this but it will change things and we need to think very carefully about that. So look, at the end of the day, we need to recognise we have a set of skills – we believe – and we have an environment that allows us to do something in a very specific way. But we also have to understand it is our clients’ money – they come to us, they ask us to manage it and, if they ask us to do so in a specific way, while it is our right to say we cannot do it in that way with those limitations or with those specifications, quite often we can – and it is a privilege to do that for them.

NW: It is very interesting to hear how things have changed. Let me pick up on something you said earlier – that you had not been forced into buying growth stocks at the point of most pain for value managers. My own experience has been that more value managers have been tempted that way, which is quite interesting – and particularly in the US. What is it about your process that keeps you so steadfast and not tempted into some of those situations? You have mentioned corporate culture, but is there anything you would particularly highlight that you absolutely cannot change about your process?

NK: I think there is a tenor that is created across the team – a kind of attitude from the very top down. We have a very flat hierarchy but look at the most senior people in the team. Kevin is the oldest and has spent one year more than me at Schroders – as he loves reminding me! – and he has this unshakable belief in contrarianism and doing what he thinks is the right thing. And that is also the way I feel and it is the way Andrew Lyddon feels. We have some pretty senior investors here to the extent that, despite having doubled the number of people on the team – and despite finally having some people young enough they might actually understand what on earth the metaverse is! – our average investment experience age is nearly 17 years.

So people are established but, all the way through the team, there is this streak of contrarianism – it is innate, it is natural – not wanting to be told what to do. But I think we also recognise we are humans. You can see it, tempers become shorter and our behaviours do change when performance is particularly bad because we care about what we do – we really care. We do understand there are certain things we can and can’t do to affect performance – particularly in the short term. Still, when performance in the short term creeps into longer periods, as it can do with value – it is very lumpy and we have seen three-year periods and longer that go negative, which can be hard – I think we do everything we can to reinforce that contrarian approach.

I mean, back in 2013, initially creating the Value Team itself was our attempt to bring together people who were isolated and doing value into an environment where it was OK to be different and it was OK to take a longer investment horizon – you know, a five-year investment horizon, which is what we typically take. That was very normal 20 years ago – it may not have been done by the majority of funds but it was still very normal back then – whereas, these days, it seems impossibly long versus the kind of quarterly time periods people now talk about. So it was about bringing everyone together in an environment where there is a certain amount of camaraderie around that – a kind of confidence that is self-reinforcing.

Not every value fund is the same, not all value stocks are the same – but broadly what you find is, when value is having a very tough time, of course, all of us tend to be having a very tough time. So that in itself is quite reinforcing and it is part of my role as co-head to insulate the team and make sure people feel comfortable and confident. Frankly, I do not get a lot of pressure from the wider business but, if there ever are concerns, I make sure there are huge open lines of communication with the business so it is very transparent what we are doing and they understand us and there is no miscommunication. And I think all of that helps to reinforce an environment in which we can be appropriately differentiated and as contrarian as our clients need us to be.

Why ignorance can be a superpower

NW: So let’s turn to mistakes then! Every fund manager makes them so what stands out from the last 10 years and what learnings have you taken from them? Actually – have you have you lived up to Ben Whitmore’s ‘one bust company a year’ advice or not? I’m not sure you have!

NK: Actually, that is the bit that makes me nervous! When people come into this industry, they get very nervous that they don’t know anything. A lady has joined our team, Charlotte Smith – very impressive, very sharp, has come to us through the graduate scheme and we are delighted about that – and I try and reinforce this line that ‘Ignorance is a superpower’. The problem with investing is, once you know a bit, you think you know a lot. Stuff that is quite anecdotal gets embedded and becomes assumed wisdom and you never ask the questions – Why do I do that? Why does that company do that?

You know – how objective can I be about British Telecom? It is a business I have seen for 20 years and, while it has changed its spots a few times, it is still just British Telecom to me, right? Whereas the first time you see that business, it could be anything to you. That is very powerful – that ability to learn – and I do worry a little that as, we grow more experienced, Kevin or I, we slightly lose our ability to be as wild and naive and take the risks. I mean, we do push ourselves pretty hard on that and I think, if you went and looked at the stocks in our portfolios – well, to use an old line, when you look at our income fund, you should feel a bit uneasy; and when you look at our recovery fund, you should feel really queasy! So there are lots of potential mistakes but our potential mistakes are also the ones that could be our greatest victories – and that is very difficult.

Still, to answer your point directly, there are tons and tons of mistakes and I continue to catch myself doing things like, ‘I will wait a bit longer for that because we are always too early in these stocks’. No – treat the valuation as it is because you don’t know what is coming tomorrow. There could be a bid tomorrow for the business, opportunistically, because someone thinks it is too cheap. So don’t try and market-time. More specifically, this is probably a bit geeky but I was looking the other day at the Tesco results and the way we view its balance sheet has changed because now we recognise leases are a form of debt on the balance sheet.

We have always thought about and adjusted for that but we did not treat it as straight debt whereas, now, it is just accepted wisdom in general retail that leases are debt – and, actually, their balance sheets are night and day versus where they were five or six years ago. It is just not going back and, actually, it was probably a mistake not to think about it that way – you know, we were making an adjustment but were we bold enough? There are lots of technical factors like that but one of the things we do with all our stocks is a post-mortem. Once we have sold it or it has gone to zero, if it is one of our failures, or even if it has done well – whatever has happened, once a stock is out of a portfolio, we look back and ask, Did we make the right decision?

One of the most dangerous things in investing is ... actually it is one of the questions we ask interviewees when they come to our team – so I’m not sure I’m going to be able to ask it ever again! – is, If I bought a stock and, a year later, it has gone to zero, did I do the right thing or the wrong thing? You know, it is kind of a trick question but can I really have done the right thing, if it went to zero? Doesn’t that make you the worst person at your job in the world? But the reality is – you don’t know, right? What we do is probabilistic – if I buy a certain stock 100 times and I make money 60 times out of 100, I am a legend in investing terms, OK? The difference in luck and skill in investing is very, very tight.

So what we need to understand is, If I made that same decision about that investment 100 times, would I make money 60 times? And how much money would I make? That is the probabilistic calculation here – and the other side of the equation holds too, when you make a ton of money. We sometimes look back and go, Well, we made three times our money in that stock – and we should never, ever do that again! Just never – because we got lucky. Actually, that was not a 60 out of 100 decision it was a 40 out of 100 but it came up heads for us so fine – but don’t do it again. So we come back to learning, learning, learning. It is something I repeat over and over – there is something to be learned from everything but just be careful the lessons you learn.

The heart of value – and telling it the way it is

NW: Good advice. Let’s talk a bit about the value environment. I was at the London Value Investors Conference in September, which hosted a fascinating discussion where US value investor David Einhorn was arguing value investing has changed forever. He said he no longer has the large mutual funds buying stocks off him and, actually, passive is on the rise – and when you buy into a passive investment, you are buying into assets that have done best and they are often higher-growth names. Now, that is the US so I wonder how you see value investing today – is there something that has fundamentally changed in your perception and, if so, is this a threat or an opportunity? Could you talk a bit about the environment over the long term and how that has changed for you?

NK: That is a pretty enormous box you have lifted the lid on there, Nick! Still, in terms of how we think about it, I would separate out a couple of things. One is about fundamental value investing – the approach and the philosophy – and whether or not that is going away. And then the other is about how our industry is changing and where the flows are coming from and how clients are investing and so on – and they are slightly different, I’d say. I mean, fundamentally, at its heart, there has been this great debate on value investing over the last 10 years or so about, Well, what is value? You know – is it ‘Buffett value’? Is it ‘Graham value’? Is it is ‘Einhorn value’? And which metrics do you use? Is it free cashflow yield or average K-ratio or whatever?

And actually, I just think that misses the point, which is, at its heart, value investing is basically behavioural, right? It exists because humans are irrational and they get really, really scared. To come back again to ‘one stock going bust every year’, there is not a chance a fund manager wants to talk about a stock that has gone bust! I mean, Kevin and I have had our names on the front page of the Financial Times a couple of times now along the lines of ‘Nick Kirrage and Kevin Murphy, largest holders of now-insolvent Blacks Leisure’ – and that doesn’t feel like a great moment, in some regards, even when you understand it is part of the process!

People don’t want to be part of that and so, when a stock starts to fall, there is this whole concept of a stop-loss – Get out, don’t look silly – and I think that will always exist. Now, how that manifests in the context of high-frequency trading, liquidity volumes, markets – you know, all of that is up for debate. But humans are always going to be humans – that is the one thing I have bet my career on and I would continue to do that. And that is an opportunity.

In terms of clients accessing that, though, there are a couple of things to consider here. One is that historically – and being very honest about it – if you compare those charts of S&P500 returns over 50 years and S&P500 mutual fund returns over 50 years, which is basically that index return minus fees, on average, there are great managers within that. But then the average investment experience of an investor in those funds is something like 2% less because clients buy and sell at the wrong moments – because, again, it is behavioural. And, actually, part of what we are doing here is ensuring our clients come with us on the journey so they can realise the benefits we know are inherent in those inefficiencies in the stockmarket.

So I consider part of our role as being very transparent with our clients – being very open and communicative and straightforward with them. We never claim to be anything we are not. We always highlight the volatility and lumpiness of the returns – but we also highlight the incredible potential long-term returns of value. And so, in being honest with them in that way, we end up with clients coming with us and not selling at the wrong times and buying at the wrong times. And that tends to be good.

As for David Einhorn’s point – is the industry changing? I think it is. Mutual funds are less attractive than they once were – for lots of reasons. I have said this before but the active management industry’s greatest strength – the single greatest tool in its arsenal against passive – is ultimately we can do everything bespoke. Passive’s Achilles’ heel is, You must have it in one flavour. Active can do it any way you want – but do we? Not predominantly – we wrap it up like a mutual fund and make you buy it in one flavour. But I think that will change – and I think that is to the clients’ benefit because, actually, they will receive a more tailored and more bespoke portfolio that better reflects the way they want their money managed.

Now, that is not a straightforward and simple thing to deliver in the short term. It is complex, it has risk challenges associated with it and you also have to be very honest with yourself about when you can’t do it. After all, clients can ask for things that seem reasonable – but, of course, I can ask for anything, if I don’t know how it is put together. So we have to be very honest about when we can’t do things, too. And I think our industry is evolving towards catering for that and I think things are changing. I don’t know exactly what the future will bring but it is something we are alive to. We serve at the pleasure of our clients and we need to make sure we are delivering the performance we can – but in a way that works for them.

NW: It will be interesting to see how that develops – although, ultimately, it does require the client to know exactly what they want! Now, one thing I have always noticed in our various meetings over the years is, while you are definitely willing to tell me when we should buy more of your funds, a much rarer trait is you will also say, You know, this isn’t such a good time to buy. I wish there were more managers out there like that because the most difficult thing, from my side, is wanting to buy more of something that has gone up, when you should be doing exactly the opposite. So we always really appreciate your honesty – and, to be perfectly honest myself, it would be very helpful to the industry as a whole, if we had a bit more of that.

NK: It is very difficult because it is so nice when people invest money with you – because, in some respects, it is a validation of what you do, right? Somebody wants to give you money to do the thing you do every day, which you are proud of and think you are OK at – otherwise, you would stop doing it – and that is a lovely validation. Unfortunately, though, our industry is set up so that the time people probably want to do that is a time that is not always in their best interest. I actually think we are at an interesting point in the history of value in that, normally, what tends to happen is you get a lot of the performance upfront – and then people get very excited about that, they come in late and they get the disappointment.

This time, however – because the depth of what we have been through for value has been so bad – we have seen a bit of a bump and people have suddenly thought, Well, that is kind of interesting again. So, actually, I don’t think we are done. I think, over the longer term, there is a lot of performance to ‘recapture’ there so it is kind of exciting. And, ultimately, performance is what matters most to us – and, within that, performance for the people who are already in our products matters most of all. Still, that needs to be traded off against the fact that we want to have a positive effect on people’s lives, in terms of their savings – in terms of people being able to retire earlier or their kids going to the school they want them to go to or doing whatever they want to do with this money. We want it to actually change their lives and to drive outcomes.

You only have to look at how low the investment amounts are in defined contribution pension pots to know how hard those pots need to work to give people the retirements they deserve. So we want people to be invested in our funds and there is this constant theme where I am sat there saying, It would be great if more people were invested in them – because we think they are good products and they will actually compound for people over time – but there are definitely better and worse times to invest in anything. And one thing Kevin and I said a long time ago was, at the end of the day, we want to be judged over an investment career based on: one, our long-term performance track record, not the amount of money we ran; and, two, our honesty with our clients – whether or not we told it the way it was. And we have stayed true to both those commitments.

The harder it is to do, the likelier it is money can be made

NW: Returning to that long-term perspective, many value investors have suggested we are on the cusp of an extended period of value being in vogue across numerous years. And we did see a couple of years of that – and then guess what? AI came along and, suddenly, the only thing people want to own is the likes of Nvidia and value managers have had a tricky time, year to date. So could we see another period of extended outperformance or are we now looking at ‘one year on, one year off’ for investment styles and investor should be aiming for more balanced portfolios and identifying the best stockpickers?

NK: It is frighteningly difficult and I do worry about some of the imbalances. I mean, I’m originally a UK fund manager by trade – I’ve been doing global funds for a long time, but my ‘heritage’ is the UK – and, when you used to hear global managers talking about the ‘concentration’ of this or that, you would think, Oh please! You know, in the UK stockmarket, 20 companies pay two-thirds of the dividends, the concentration of the biggest 10 is enormous and all the rest of it. But actually that was completely wrong – another way in which I am totally wrong continuously!

If you look at what is happening globally now, there is a lot of commentary on the concentration of those ‘mega-caps’ and how, if you strip out those ‘FAANG’ or ‘MAANG’ or however way you want to call them stocks, actually the S&P500 is not roaring away, year to date. That concentration risk – whether or not it is dollar concentration, stock concentration, sector concentration – has been an enormous thorn in the side of diversified investors. We all know that, historically, the equal-weight portfolio outperforms – but it just hasn’t of late. And that makes it very, very difficult – particularly as contrarian investors. It is not really our great skill-set to try and identify whether or not some great growth stocks will disprove the adage ‘Tall trees don’t grow to the sky’ – though I have my own thoughts on that – but those concentration risks haven’t gone away and they do create the potential for these swings.

I keep coming back to this idea – the harder it is to do, the likelier it is money can be made. I mean, there is a direct correlation here – if it was super-easy to make money, lots of people would have gone and done it. And if it was just a case of buying the 10 stocks that help you sleep well at night and feel good ... well, that is just not the way the world works. I have talked about this before – you know, all the things that are really valuable are also really hard work. If you want to stay healthy, you cannot eat the things that taste amazing – and you have to go and do exercise, which can be really frustrating and painful. And it is like that in investing so I personally believe that, actually, the returns will eventually reflect the difficulty of going against the crowd on that kind of trade.

NW: I am going to finish up by picking your brains for any pearls of wisdom you have picked up over your career. Does anything stand out as a piece of advice that has stood you in good stead?

NK: This may sound weird – I don’t have a mantra at work but, five or so years ago, when my kids started going to school, I was very worried about what to say to them. I needed something that was simple and repeatable – a mantra I could send them off with that kind of summed up what my wife and I hoped the experience of school would be like for them. And I settled on, ‘Learn lots. Have fun. Be kind’. And, actually, the more I think about it, that kind of works for my career too. It is a very small world and a very small industry, so don’t stamp on people you don’t know – that is a bad idea – and you just get a lot more out of people when they trust you, respect you and want to work with you.

That doesn’t mean everyone is right and you have to put up with things you think are wrong – but it is just a good way of living. It is about learning and developing – just try and get a bit better. Try and develop yourself – it doesn’t always have to be a process, and it might be in many different ways, but try and embrace that kind of enjoyment of trying to develop yourself, however that may be for you. And since we spend a lot of our time working – I probably spend more time working now than I ever have – we have to be very careful about letting that spill over. So I keep my boundaries because work can be all-consuming – but I do have a lot of fun and I work with people, I think, who have fun. Work is at its best when it is enjoyable to be doing something together, for the benefit of your clients – and being good at it over time is very rewarding. So maybe that.

NW: Fantastic. That is a brilliant way to finish this interview so thank you so much for inviting me to present this podcast – it has been a pleasure as ever – and good luck for the next 10 years.

NK: Thanks very much, Nick – for your questions and for all your support.