Politics has been a key discussion point for investors this year but, for Rathbones’ head of multi-asset investments David Coombs, attention to the topic has not just increased off the back of events such as Brexit and the US election.
Indeed, Coombs’ passion for politics has been driving his investment views and choices since he began his career in the mid-1980s.
He says: “Politics fascinates me. It drives anything long-term, and I am a long-term investor. The key is to do things with common sense but I am much more politically biased. I follow politics more than economics.”
Despite dreaming of a job in the police force when he was younger, Coombs started out in the asset management industry at Hambros Bank in the Channel Islands in 1985. After just five months he was transferred to its investment desk to work on multi-manager portfolios, and worked there throughout the 1987 financial crisis, moving to Barings in 1988, which had a more international client base.
In the years following, Coombs saw the investment industry growing quickly. And that fast growth did not leave him without challenges.
“All the while it was growing so fast we were learning, so we probably made mistakes along the way. We also had the 1995 Asian currency crisis and Russian debt crisis in that time, and could see clients’ portfolios going down by 25 per cent,” he says.
After the bursting of the dotcom bubble, Coombs moved to Barings’ London office to launch a unit trust for the firm. His transition from there to Rathbones in 2007 came just in time for the 2008 financial crash.
“Liquidity, rather than volatility, is the most important thing to focus on”
He says: “That was horrendous. But all those different crises have massively affected the way I look at risk. Today I am thinking about it all the time. I have lost money like everyone else, so I have learned that liquidity, rather than volatility, is the most important thing to focus on. Now I never look at volatility in any investment and that drives my process.”
As a result of this need for liquidity, Coombs will not access commercial property or infrastructure via open-ended funds.
According to the manger, running a multi-asset fund requires a set of strategic skills that not all of his peers have.
“We increased cash to 28 per cent in the last few months but we also upped the risk in equity. That is how you run a multi-asset fund. You can’t run them in separate pots; you have to run them together to understand the risk dynamics of each part of your portfolio.
“I know every bond and equity in the portfolio, and every diversifier so I can manage the risk better. A lot of multi-asset funds are not run that way. They can be big boxes of tools that get pushed together. I do not believe that is the correct thinking.”
With a clear idea of his portfolio, Coombs is firmly convinced that the negative side of the UK’s exit from the European Union will be offset by positives in the long run.
“Being out of the EU is more risky but that does not mean it is bad. Risk is good; it is what we do,” he says.
“The UK is a G7 economy. We are a big consumer market and a net importer so, from a pragmatic perspective, there will be a queue of countries wanting to sign with us. And I think that will happen much quicker than people believe.
“We have the English language, English law, the fact that it will be just one government to deal with rather than 27. People keep forgetting that point. It is going to be easy to do business.”
The manager prepared his portfolios for the possibility of Brexit and says he may do the same for a Donald Trump win at the upcoming US election. US equities are currently his biggest overweight across the range; a position he may reconsider.
“My view is that Trump could well win and we are trying to work out what that will mean. In short term, markets will be volatile and probably negative,” says Coombs.
He has hedged 50 per cent of the dollar positions across the portfolios, sold US treasuries and bought into Swiss franc corporate bonds, despite being more illiquid.
“Failing in performance is a lonely place to be.”
Aside from being a single-parent to a 15-year-old, Coombs says his biggest challenge at the moment comes down to performance.
“Failing in performance is a lonely place to be. But when you are doing very well, you are really under pressure because you do not want to lose it. That is the biggest challenge of this job: getting the balance right between good and bad performance. The key is not to deviate from your conviction.”
Having built up a team around him since the start of the year, Coombs is not looking to change career anytime soon.
“A 30-year career does not make you a guru. I think I know less now than I thought I knew back then because you lose that arrogance of youth. Analysts have a bigger skill set than I do but my job is to bring them together and make a decision on when to buy and when to sell.
“I have been doing this for some time and now I have an assistant and work in a team. I want people with my background, out of comprehensive school, to do what I am doing. I want to help them to enter this market.”
What is the best bit of advice you’ve received in your career?
If you run a multi-asset fund, start with allocating away from index-linked bonds and emerging market equities.
What keeps you awake at night?
Getting my son’s GCSEs done.
What has had the most significant impact on asset management in the last few years?
Zero risk-free rates.
Any advice for new fund managers?
Be prepared to make mistakes and don’t let them stop you making a decision.
If I was in charge of the FCA for a day, I would…
Put more emphasis on investor knowledge on risk-adjusted returns.
2007 – present head of multi-asset investments, Rathbones
1988 – 2007– fund manager, Barings Asset Management (Guernsey and London)
1984 – 1988 – fund manager assistant, Hambros Bank (Guernsey)