MLC Head of Risk, Simon Elimelakh talks about the importance of investment style and blending managers of different styles to smooth the volatility of returns.
Jason Hazell: Hi I’m joined today by Simon Elimelakh to talk about the importance of investment style. Welcome Simon.
Simon Elimelakh: Hi thank you Jason, thank you for having me today.
Jason Hazell: I’m really interested in why investment style is an important aspect of analysing a fund manager?
Simon Elimelakh: We believe it’s fundamental and it’s fundamental to the way managers manage money, which we give them to manage on behalf of our clients. And it’s fundamental to understand the investment environment as well.
Jason Hazell: How have the different investment styles, be they value growth or momentum, performed over the last few years?
Simon Elimelakh: It’s been a really interesting period. I guess one can say markets are never dull, but these last two/three years they’ve been really really volatile, in terms of investment styles. Just to give a couple of examples, which we highlighted in the article, momentum after being really really slow in 2016, so far has a really great year in 2017. If you look at value, which is a factor many managers follow, 2016 was probably one of the best years for value managers. And so far in 2017, they’ve been having difficulties.
Jason Hazell: How do you separate the style component from the skill component when you analyse fund managers?
Simon Elimelakh: Sure, it’s a great question and it’s all sort of interconnected. I guess skill shows through style as well, but on the top of it, every manager does something different. So no two value managers are the same, no two growth managers are the same. We use sophisticated tools; we use external tools, which we subscribe to. And of course, it’s very subjective, but it helps us to understand managers better.
Jason Hazell: And is remaining true to label, or having a consistent style important for you?
Simon Elimelakh: Absolutely, because without understanding and fully relying on what that manager does what they tell us they do, we cannot really combine them together and it is very very important. One manager can be very good by itself as a standalone proposition, but this manager at the same time can be no good for us, because we need them to glue together.
Jason Hazell: What then is the key objective of combining various managers of different styles together?
Simon Elimelakh: As we already mentioned, just looking at the last couple of years, one-year value does well, next year momentum does well. If you list with just one manager, you’re exposed to all this volatility. By combining managers together, given everything else equal, we’ll try to achieve a smoother ride for our investors.
Jason Hazell: Well thank you very much for your time today Simon and thank you for joining us.
Simon Elimelakh: Any time, thank you.