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Hedge Clippings | Friday 13 September, 2019
Hedge Clippings attended two very different but equally interesting presentations during the week, one being Livewire's "Live 2019" event, which brought together a range of "best in breed" active fund managers presenting their views on the current market, and sharing some of their wisdom and best ideas.
The event kicked off with a debate between opposing teams who were either in the "risk-on" or "risk-off" camp, a highly topical subject given that irrespective of their view on the length or strength of the current bull run, even the "risk-on" advocates were quick to point out that there are significant risks in the current market.
Managers including Totus Capital's Ben McGarry, Perpetual's Anthony Aboud, and Philip King from Regal Funds Management were of the view that whilst the current market may continue for some time, and where "value" investing is out of favour, specific sections of the "growth" stocks were shaping up as one of the great shorting opportunities.
Overall, the consensus was that interest rates are going to remain at these levels (or lower) for some considerable time. In fact, it was difficult to find anyone who was prepared to predict not only when interest rates may rise, but what factor may be responsible for their doing so. As such it was difficult not to argue that equity markets as a whole would benefit as a result. However, there was some concern (shared by Hedge Clippings) around ETF's and index investing: Firstly, that the rising tide effect lifts all ships, or all stocks if they're part of the index, irrespective of their quality, and secondly that any significant exit from ETF's in the future would lead to a snowball effect.
Of particular interest were two specific sessions, one an interview with Scott Nuttall, Co-COO of US-based global private equity giant KKR, and the other a Q&A session with Magellan's Hamish Douglass, and Platinum's Andrew Clifford.
The second presentation we attended was from Winton Capital Management, the UK-based systematic manager founded in 1997 by CEO and co-CIO, David Harding, following 10 years running AHL using similar statistical and mathematical systems to provide diversified returns trading futures markets.
Winton employs significantly complex trading strategies, backed by large numbers of significantly intelligent "quants", no doubt with buckets of PhD's amongst them. What was interesting in David's presentation was that issues such as risk on vs risk off, growth vs value, or the overall macro view of the world which were debated at length at the Livewire event, didn't really come into their processes at all. Instead, Winton's approach (borrowed from their presentation material) is that their "investment decisions are driven by the empirical analysis of data rather than opinions based on economic and financial theory."
Over 30 years since founding AHL, and subsequently Winton, David's success is undoubted - not only in building a significant global business, but also being financially successful enough, as a result, to have generously, with his wife Claudia, joined the Giving Pledge, a commitment to give away more than half their wealth during their lifetimes.
We are not espousing quant versus discretionary managers or vice versa (although we are not great fans of index investing for the reasons stated above) because each have their place subject to performance. In fact, without the discretionary managers, and other discretionary investors, the market probably wouldn't have the deficiencies such that quants such as Winton would be able to implement their super smart algorithms.
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