What Marcelo Bielsa’s Leeds United team have in common with value investing
In the hunt for a good value fund manager, investors could do worse than identify one who shares the same key principles as Leeds United and their unwaveringly driven and disciplined manager Marcelo Bielsa
For Premier League football fans, one stand-out aspect of the 2020/21 season so far has been almost any match involving Leeds United. Playing in their first season back in the top flight of English football since 2004, journalists, commentators and neutrals across the country have been, well, united in their view that Leeds have been a breath of fresh air.
For most fans, the joy of getting to sample the rarefied atmosphere of the Premier League has tended to be tempered by the subsequent sadness of watching their team go from playing the free-flowing, confident style of football that served them so well to gain promotion from the Championship, to becoming a cagey, defensive-minded underdog in the 38 games in English football’s top flight.
Well, not the 2020/21-vintage Leeds United. Marcelo Bielsa, the team’s manager, has been absolutely resolute in maintaining the approach that served his side so well in the Championship. Week in, week out, for better or for worse, they have trained and played with the same expansive, high-intensity and ambitious style of football that saw them storm past their opponents last season.
Consistency of style
What this consistency of style has drawn to Leeds is a loyal and devoted fanbase. Their supporters know exactly what manner of performance they are going to see from their team each week and everyone – players, football club and fans – trust in the approach, process and judgement of their manager.
The Premier League, however, is not the Championship and so, while this consistent approach has led to some superb performances this year, it has also left the team exposed at times. What Leeds United have not done though, is sit on the fence during matches. After 29 games played, their style of football has yielded 12 wins, 14 losses and just three draws, leaving them in 11th place in the league – not bad for an underdog.
We have not forgotten we promised you a link with value investing and here it comes. Regular visitors to The Value Perspective will be well aware that value is an investment style where people choose to buy companies they judge to be trading at a cheaper price than their fundamental characteristics would warrant – that is to say, they trade at a price lower than their fair value.
Value investors aim to make money through buying and holding these stocks in the belief that, over the long term, their prices will eventually mean-revert and increase to represent what is their higher intrinsic fair value – at which point they will sell them.
Psychologically, as we have actually discussed in a footballing context in World Cup emotions, value investing is tough. The prices of stocks you buy can continue to fall and it can be both difficult and mentally painful to watch. The value style requires a consistent mind-set, process and belief that long-term benefits vastly outweigh the short-term discomfort.
By now, you may have a sense of where we are heading with our Marcelo Bielsa/Leeds United connection. Any true value investor will admit that, over the last decade, the investment ride has not been easy. On the whole, investing in a growth style – with its focus on companies whose earnings or profits are expected to grow at an above-average rate compared with others within the same industry – will have scored you much greater returns than if you had invested the same amount in a value style.
Some might even argue every year for value investors of late has felt like that first year for a newly promoted side in the Premier League – tough, filled with patches of disappointing results and leaving managers tempted to change their style. If the last 10 years were a footballing season, however, it is also fair to say there have been a handful of intense periods – known as ‘value rotations’ – where value investing has come out on top.
It is in these periods – 2020’s November value rally being freshest in the mind – where the value investors who, like Leeds United, have remained consistent in their philosophy despite losing previously, won pretty emphatically. So, as with all things when it comes to investing, it is important to be diversified – not just in the countries and sectors in which you invest, but also, as we discuss in Two big lessons from 2020, in style.
Four key principles
And, in the hunt to find a good value fund manager, investors could do worse than identify one who shares the same four key principles as Marcelo Bielsa and Leeds United – that is to say, one who:
1) Remains resolute in their value investment approach: they are committed to playing the same way each week, month and year;
2) Thinks long term and is unfazed by short-term performance: good managers think in years not quarters – or, in a football sense, in seasons not games;
3) Continually looks to test and improve their investments: good value fund managers will constantly analyse, test and push the limits of existing and potential investments. In the same way, Bielsa relentlessly pushes his Leeds team to improve; and
4) Will not sit on the fence: the best value investors will always remain true to that label. This means that, when value performs, they perform strongly and when it is out of favour, they do not – giving you the style diversification you need in your portfolio. Value fund managers, like Bielsa’s Leeds, don’t do draws!
The future is uncertain and impossible to predict so nobody knows what the future holds for Leeds United this season and where they will finish in the table. The only thing we can be certain of is that, like disciplined value investors, they will continue to play the same way to get there – wherever that may be.
The views and opinions displayed are those of Nick Kirrage, Andrew Lyddon, Kevin Murphy, Andrew Williams, Andrew Evans, Simon Adler, Juan Torres Rodriguez, Liam Nunn, Vera German and Roberta Barr, members of the Schroder Global Value Equity Team (the Value Perspective Team), and other independent commentators where stated.
They do not necessarily represent views expressed or reflected in other Schroders' communications, strategies or funds. The Team has expressed its own views and opinions on this website and these may change.
This article is intended to be for information purposes only and it is not intended as promotional material in any respect. Reliance should not be placed on the views and information on the website when taking individual investment and/or strategic decisions. Nothing in this article should be construed as advice. The sectors/securities shown above are for illustrative purposes only and are not to be considered a recommendation to buy/sell.
Past performance is not a guide to future performance and may not be repeated. The value of investments and the income from them may go down as well as up and investors may not get back the amounts originally invested.