Our Hyper Active series explores how GAM Investments’ portfolio managers – across both equities and fixed income - aim to harness the potential of active management to deliver better results for clients.
20 September 2024
Our previous Hyper Active editions drew on our experience as an active asset manager, highlighting how Flavio Cereda and Niall Gallagher look to capitalise on stock performance dispersal in the luxury sector and target stock-specific risk in European equities respectively.
In this latest edition, GAM’s Paul Markham, Investment Director, Global Equities, explains how he and his team look to apply the active management advantage to the worldwide stock universe.
Applying active management to a global opportunity set
I firmly believe in portfolios with focused positions and high active share. Embracing targeted risk in the market is fundamentally necessary. While I occasionally hold underweight positions in the very largest stocks in the market – generally en route to a more constructive position – I maintain a zero weighting in many large caps. In the global equities team we are committed to making bold decisions, fully aware of the substantial influence these stocks wield on our relative risk profile.
I believe it is crucial to build concentrated portfolios with a high active share and some diversification of risk as a means of aiming to deliver longer-term outperformance for our clients. Successful non-index-driven investing is about taking the right amount of active risk, especially in the skewed markets which we have witnessed for much of 2024, where a small number of megacaps have dominated.
For some investors, the starting point in global equities may be a low-cost tracker on something like the MSCI World Index, which can give them the exposure they want when markets are rising. However, markets do not always behave as expected; and I believe that active management delivers for investors during the ebbs and flows of markets over the long term. Furthermore, it is important not to overlook the mathematical realities of investment performance over time. From both a volatility and capital accumulation standpoint, it is more advantageous to outperform in a declining market than in a rising one. A 50% loss requires a 100% gain to recover. This principle underscores the value of active management, especially in a falling market. For instance, if the market drops by 30% and an active strategy captures only half of that decline, it is a more favourable outcome for long-term capital growth compared to capturing an equivalent 15% gain in a rising market. The mathematics of recovery are more favourable in the former scenario. This is a fundamental truth of investing, and I believe that, through the ups and downs of markets over the long term, active management can deliver more attractive results for investors.
The Internet of Things and data will deliver a new era of growth, connectivity and business models
Source: GAM.
The views are those of the Manager and are subject to change. For illustrative purposes only. There is no guarantee forecasts will be achieved. 1IoT, the term IoT, or Internet of Things, refers to the collective network of connected devices and the technology that facilitates communication between devices and the cloud, as well as between the devices themselves.
The views are those of the Manager and are subject to change. For illustrative purposes only. There is no guarantee forecasts will be achieved. 1IoT, the term IoT, or Internet of Things, refers to the collective network of connected devices and the technology that facilitates communication between devices and the cloud, as well as between the devices themselves.
Active management enables us to embrace industrial diversification in disruption. Plainly the IT sector has been a key source of opportunity for global investors over the last decade, and the tech-led megacap rally has been fronted by stocks like Taiwan Semiconductor, Nvidia and Microsoft, all of which we have held in size across our portfolios. But innovation and disruption are by no means limited to the IT sector. As active managers, we have scope to capitalise on these opportunities across various sectors. While technology will likely remain an enabler for most companies, being a driver of change today often requires the effective use of technology, but not necessarily as the primary focus of a business. True disruption may stem from secondary technology applications, supported by visionary management teams with strong execution capabilities and a deep understanding of evolving consumer needs.
Our strategies are never confined to solely large or small companies in terms of market capitalisation. While disruptive innovation is often linked with smaller, emerging companies, it is important to recognise that large-cap entities can also be agents of change by capitalising on their technological prowess, adept management and deep data-driven consumer insights. Given our global opportunity set, as active managers, we can identify and capitalise on innovation-based investment opportunities in sectors and companies you might expect, such as Alphabet or Intuit, as well as some areas that, on the face of it, many would not associate with innovation.
For example, consumer appliance innovator SharkNinja is a holding in our Global Equities strategy not present in the MSCI World Index, exemplifying our active management approach. SharkNinja is a powerful endorsement of the strategy of using technology as a tool for disruption, rather than being a disruptor within the technology industry itself. This approach is increasingly prevalent as more companies leverage technology to establish their niche and redefine their industries. This shift represents a broader trend of evolution and innovation, where the application of technology is not confined to technology companies but is a strategic advantage for any player with the foresight to utilise it effectively. SharkNinja is just one of many examples we are seeing unfold, signalling a shift in how industries evolve and thrive in an increasingly digital world.
By actively managing our portfolios, we can adapt to changing market conditions, capitalise on emerging trends and mitigate risks. This proactive approach enables us to deliver long-term value to our investors, ensuring that we are not just riding the wave of the market but also strategically positioning ourselves to benefit from the broader landscape of innovation and disruption.
Paul Markham leads Global Equity strategies at GAM Investments
Keep following our Hyper Active series to learn more about the philosophy behind active management and how GAM Investments’ portfolio managers put the approach to work for our clients.
In our next edition, Romain Miginiac explains how he looks to maximise the advantages of active strategies in managing fixed income portfolios.
Important disclosures and information
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. Specific investments described herein do not represent all investment decisions made by the manager. The reader should not assume that investment decisions identified and discussed were or will be profitable. Specific investment advice references provided herein are for illustrative purposes only and are not necessarily representative of investments that will be made in the future. No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Investors could lose some or all of their investments.
The MSCI World Index is comprised of circa 1,429 large and mid-cap companies across 23 developed markets, representing approximately 85% of the free float-adjusted market capitalisation in each country. References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in indices which do not reflect the deduction of the investment manager’s fees or other trading expenses. Such indices are provided for illustrative purposes only. Indices are unmanaged and do not incur management fees, transaction costs or other expenses associated with an investment strategy. Therefore, comparisons to indices have limitations. There can be no assurance that a portfolio will match or outperform any particular index
The foregoing views contains forward-looking statements relating to the objectives, opportunities, and the future performance of the markets generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.
The information contained herein is given for information purposes only and does not qualify as investment advice. Opinions and assessments contained herein may change and reflect the point of view of GAM in the current economic environment. No liability shall be accepted for the accuracy and completeness of the information contained herein. Past performance is no indicator of current or future trends. The mentioned financial instruments are provided for illustrative purposes only and shall not be considered as a direct offering, investment recommendation or investment advice or an invitation to invest in any GAM product or strategy. Reference to a security is not a recommendation to buy or sell that security. The securities listed were selected from the universe of securities covered by the portfolio managers to assist the reader in better understanding the themes presented. The securities included are not necessarily held by any portfolio or represent any recommendations by the portfolio managers. Specific investments described herein do not represent all investment decisions made by the manager. The reader should not assume that investment decisions identified and discussed were or will be profitable. Specific investment advice references provided herein are for illustrative purposes only and are not necessarily representative of investments that will be made in the future. No guarantee or representation is made that investment objectives will be achieved. The value of investments may go down as well as up. Investors could lose some or all of their investments.
The MSCI World Index is comprised of circa 1,429 large and mid-cap companies across 23 developed markets, representing approximately 85% of the free float-adjusted market capitalisation in each country. References to indexes and benchmarks are hypothetical illustrations of aggregate returns and do not reflect the performance of any actual investment. Investors cannot invest in indices which do not reflect the deduction of the investment manager’s fees or other trading expenses. Such indices are provided for illustrative purposes only. Indices are unmanaged and do not incur management fees, transaction costs or other expenses associated with an investment strategy. Therefore, comparisons to indices have limitations. There can be no assurance that a portfolio will match or outperform any particular index
The foregoing views contains forward-looking statements relating to the objectives, opportunities, and the future performance of the markets generally. Forward-looking statements may be identified by the use of such words as; “believe,” “expect,” “anticipate,” “should,” “planned,” “estimated,” “potential” and other similar terms. Examples of forward-looking statements include, but are not limited to, estimates with respect to financial condition, results of operations, and success or lack of success of any particular investment strategy. All are subject to various factors, including, but not limited to general and local economic conditions, changing levels of competition within certain industries and markets, changes in interest rates, changes in legislation or regulation, and other economic, competitive, governmental, regulatory and technological factors affecting a portfolio’s operations that could cause actual results to differ materially from projected results. Such statements are forward-looking in nature and involve a number of known and unknown risks, uncertainties and other factors, and accordingly, actual results may differ materially from those reflected or contemplated in such forward-looking statements. Prospective investors are cautioned not to place undue reliance on any forward-looking statements or examples. None of GAM or any of its affiliates or principals nor any other individual or entity assumes any obligation to update any forward-looking statements as a result of new information, subsequent events or any other circumstances. All statements made herein speak only as of the date that they were made.