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Schroders’ Kirrage: There were benefits to less engaged investors

Schroder Global Value co-head Nick Kirrage sets the record straight on fund management, company transparency and why investment is all about psychology and behavioural attitudes

Over the past few years, focus has shifted from star managers onto the team or the process behind the performance. This can certainly be said for the Schroder Global Value team, which focuses on contrarian value investing – buying stocks which trade at a significant discount to their intrinsic value.

The team’s co-head, Nick Kirrage, says fund management in general is all about how you take information and make it better than average for clients. “One of the biggest misconceptions about fund management is [because] people in the street don’t really know what it is that we’re doing,” he adds.

“People think it’s about individual mercurial stock-picking, but really it’s a process that’s going to make you do a little better than average.

“It’s very unsexy and it’s hard because at times our industry seems very glamorous. But what it should be about is the nitty gritty of making client returns.

“We try to think a lot about our process and what our ‘edges’ are, the bits we possibly can do better than other people. But we’re not saying we’re better than anyone else. Managers shouldn’t spend clients’ time doing that.”

The importance of advice
“Advisers are very, very important,” Kirrage says. “I think they’re in a difficult place today.”

As a result, the team spends a lot of time speaking with advisers to help them with different asset classes, risk levels and meeting income requirements in a low-income world.

Upping honest communication with clients has become another part of the day-to-day job for the Value team. Its blog, the “Value Perspective”, updates clients and prospective clients on their thoughts on various aspects of the markets on a near-daily basis.

“We need to have a more direct conversation with our clients as well, rather than just being able to provide information,” Kirrage adds.

Teamwork
Kirrage co-manages numerous funds but is most well-known for the £2.3bn Income and £1.2bn Recovery funds, which he manages with fellow co-head of the team, Kevin Murphy. Each fund in the Value portfolio has co-managers, something Kirrage says results in having a higher conviction fund because two people need to be convinced to invest in each stock.

The team also does not separate fund managers from analysts, keeping it non-hierarchical. “We don’t believe in silo investing. We want people who are well-rounded and who are able to see investment in the context of the whole market,” he says.

“If you split fund managers from analysts then you’re saying fund managers don’t have to do the depth of work that analysts do, and they just have to listen to the ideas and decide whether or not they want to buy. We find you have a much more superficial level of debate. If someone knows a company from the bottom up, it’s almost impossible to have a constructive challenging debate with someone who has that level of knowledge.”

Despite having a stringent process in place, client appetites are changing. Kirrage believes the change has been happening over 30 or 40 years, but has been more noticeable over the past 10 to 15 years.

“The end investor used to be much less aware of their investments,” he says. “While that sounds bad – and we believe in great transparency – there were benefits to that. When markets were down, clients would be patient because they weren’t on top of what was going on. They gave investors time to be good again.”

He says an increasingly shorter-term outlook is “frustrating”. “Investment is a luck game. You really need three to five years to see the skill in what the fund manager
is doing.”

As such, he says the team is very careful on how it markets the funds and is increasingly honest with clients. Kirrage says the best time to invest in his funds is when they are at the bottom of fund lists, rather than the top. “Buying something that’s underperforming is difficult psychologically. But I would rather have £1 of money from someone able to do that than £10 from someone who is buying at the top because that £10 will flood out when times aren’t good.”

Kirrage says so much of investing is behavioural. “It’s all about the psychology of the stockmarket, why everyone is upset with the market. We spend a lot of time thinking about our psychology.”

“It’s not about looking clever; it’s about producing the best results over the long term and making that value for money for your clients.”

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