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Gordon Toy

AuthorGordon Toy

DateJuly 12, 2018

CategoryNews

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What can fund managers learn from the most successful World Cup teams? For every on-field win, there is a lot going on behind the scenes, and the same is true for Australia’s leading investment managers. Here are some universal tips on how funds can set themselves up for lasting success, based on the match-winning habits of the stars of the world game.

1. Beware the star player model

After winning the match against Portugal, Uruguay’s Edinson Cavani was struck out with a calf injury and forced to sit out a two-goal loss to France. In the risk management literature, this is known as key person risk. If your star portfolio manager leaves, your fund may underperform and you may be forced to change up your entire investment strategy. Successful teams reduce their reliance on a single star player by developing their other players and fully utilising the field. Having said that, it doesn’t hurt to have a few flamboyant strikers.

2. Maintain discipline

Winning teams are able to maintain focus and stick to their game plan even when the match is moving against them. Belgium’s astounding comeback against Japan from two goals down shows that discipline wins games and complacency loses them. Don’t panic when volatility rears its head or the market corrects. Stick to your investment strategy and make sure you are doing what you told your investors you would do. Timing the market is hard, and the chance of success diminishes rapidly when you are overcome by fear.

3. Take responsibility

When things go pear-shaped, avoid losing your head and admit when you have made a mistake. As we learned from the bizarre theatrics of Brazil’s forward Neymar, a refusal to take responsibility on and off the field will quickly see your fans disappear. Likewise, fund managers who blame the market for not doing what it should have done are unlikely to build trust with their investors.

4. Remember to score

This may seem like an obvious point, but scoring goals is the key to winning matches. Don’t be like the Australian team and overload your defence at the expense of scoring opportunities. Balance risk and return appropriately and if you have an active mandate, use it. If you are an active equity manager wondering why your investment product is being overtaken by smart beta alternatives, remember what you are there to do: generate alpha. Locking up play might work in the early rounds, but it is not a World Cup winning strategy.

5. Review your strategies

Successful teams continually assess their strategies against different sides by reviewing game footage and analysing their opponents. Investment managers should plan for a range of different market scenarios, including the worst-case scenario, and test investment hypotheses in a clinical manner. Assess your fund’s track record over long time periods and through different economic and market conditions. A lot has changed since 1966, and what worked then may no longer work now. The best teams can adapt to new ways of playing while identifying what still works.

IMPORTANT NOTICE: This document is published by Lonsec Research Pty Ltd ABN 11 151 658 561, AFSL 421 445 (Lonsec).

Please read the following before making any investment decision about any financial product mentioned in this document.

Warnings: Lonsec reserves the right to withdraw this document at any time and assumes no obligation to update this document after the date of publication. Past performance is not a reliable indicator of future performance. Any express or implied recommendation, rating, or advice presented in this document is a “class service” (as defined in the Financial Advisers Act 2008 (NZ)) or limited to “general advice” (as defined in the Corporations Act (C’th)) and based solely on consideration of data or the investment merits of the financial product(s) alone, without taking into account the investment objectives, financial situation and particular needs (“financial circumstances”) of any particular person.

Warnings and Disclosure in relation to particular products: If our general advice relates to the acquisition or possible acquisition or disposal or possible disposal of particular classes of assets or financial product(s), before making any decision the reader should obtain and consider more information, including the Investment Statement or Product Disclosure Statement and, where relevant, refer to Lonsec’s full research report for each financial product, including the disclosure notice. The reader must also consider whether it is personally appropriate in light of his or her financial circumstances or should seek further advice on its appropriateness. It is not a “personalised service” (as defined in the Financial Advisers Act 2008 (NZ)) and does not constitute a recommendation to purchase, hold, redeem or sell any financial product(s), and the reader should seek independent financial advice before investing in any financial product. Lonsec may receive a fee from Fund Manager or Product Issuer (s) for reviewing and rating individual financial product(s), using comprehensive and objective criteria. Lonsec may also receive fees from the Fund Manager or Financial Product Issuer (s) for subscribing to investment research content and services provided by Lonsec.

Disclaimer: This document is for the exclusive use of the person to whom it is provided by Lonsec and must not be used or relied upon by any other person. No representation, warranty or undertaking is given or made in relation to the accuracy or completeness of the information presented in this document, which is drawn from public information not verified by Lonsec. Conclusions, ratings and advice are reasonably held at the time of completion but subject to change without notice. Lonsec assumes no obligation to update this document following publication. Except for any liability which cannot be excluded, Lonsec, its directors, officers, employees and agents disclaim all liability for any error, inaccuracy, misstatement or omission, or any loss suffered through relying on the information.

Copyright © 2018 Lonsec Research Pty Ltd, ABN 11 151 658 561 AFSL 421 445. All rights reserved. Read our Privacy Policy here.

For more information contact:

Gordon Toy
03 9623 6373
Gordon.Toy@lonsec.com.au

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