On consistency in investment – and client comms – and a stunt-rider’s take on risk management
In our regular video series, we interview the wealth sector’s key decision-makers to discover how they think about life, both within the world of investment and beyond it; what brought them into the business and what keeps them here; and what makes them and their companies tick
Thematics – especially healthcare and the potential double-edged sword that is the AI trade – is an area Mattioli Woods investment manager Harry Merrison picks out as particularly interesting at present. “Within the strategies we run on the bespoke investment desk, we have about a 30% risk ‘bucket’ in thematics and something we see as a real opportunity is healthcare,” he tells Wealthwise editorial director Julian Marr in the above video.
“The valuations in that sector are amazing and, if you believe the demographics, there are now more people over the age of 65 than there are under the age of five – and they are all demanding better healthcare in old age. So that is a really nice long-term hold. We also think there is an incredible degree of innovation going on in healthcare – and in semiconductors too.
“The world is going to change beyond recognition over the next 20 years – we know that – but that is also the worry. More specifically, the worry is concentration risk – just look at what is happening in emerging markets. You have just three companies – Samsung, SK Hynix and Taiwan Semiconductor – that are now doing a lot of the heavy lifting there. So that is a risk to watch.”
The portfolios we make, we are not trying to predict the future or invest for just one future – we are trying to create portfolios for multiple futures.”
Zeroing in on what he looks for from individual investments, Merrison immediately chooses consistency of approach. “We are building strategies for clients – and therefore every investment has its place,” he says. “So, if you are a value manager, stick to value, please. If you are a growth manager, please stick to that path. It would be terrible for our portfolios if mid-cycle a manager changed their style – for us, that would be a bit like a pilot mid-flight deciding they wanted to be a train driver.”
Elsewhere in the conversation, Merrison is asked to what degree professional investors should be looking towards more alternative asset classes – and, if so, at what in particular? “They should absolutely be looking beyond traditional asset classes,” he replies. “In our strategies, we currently have about 12.5% allocated to alternatives – so things like gold, structured products and real assets, for example.
“In an environment of higher inflation, traditional assets are becoming increasingly correlated – so we have got to look elsewhere. The portfolios we make, we are not trying to predict the future or invest for just one future – we are trying to create portfolios for multiple futures.”
Found in translation
Turning to how he approaches client communication, Merrison sees trust and, again, consistency as key qualities. “I love speaking with clients – understanding their objectives, their ambitions, what keeps them awake at night – and, if we can understand that, we can make them a genuinely meaningful portfolio,” he says.
“A lot of what we do is translation – taking complex ideas and distilling them down – which I think is so important. What we want our clients to be able to do is leave a meeting with us and go and speak to their best friend at a dinner party and tell them, for example, Mattioli Woods have AI in the portfolio – and this is why. And if they can do that, then I think we have done a good job.”
A full transcript of this episode can be found after this box while you can view the whole video by clicking on the picture above. To jump to a specific question, just click on the relevant timecode:
00.00: What excites you about the current investment outlook? What worries you?
02.25: What do you most look for in an individual investment? What constitute ‘red flags’?
03.34: To what degree should professional investors be thinking beyond so-called ‘traditional’ investments? Towards what?
04.44: What drives your approach to client communications? Should professional investors aim to attract the ‘right’ type of client?
06.12: What was your path into investment – and, if you hadn’t taken it, what do you think you would be doing now?
08.22: What is the biggest investment mistake you are prepared to admit to – and what did you learn from it?
09.38: Outside of work, what is the strangest thing you have ever seen or done?
10.42: What advice would you have given your younger self on your first day in this business?
11.50: Two Choice Words recommendations, please – one a book; one a free choice?
Transcript of Choice Words Episode 39:
Harry Merrison, with Julian Marr
JM: Well, hello and welcome to another in our series of ‘Choice Words’ videos, where we get to meet the great and the good of UK fund selection and UK fund research and find out what makes them tick. I am Julian Marr, editorial director of Wealthwise Media, and today I am delighted to be talking to Harry Merrison, an investment manager at Mattioli Woods. Hello, Harry.
HM: Hi, Julian. Thanks for having me.
JM: It is a pleasure. Welcome to the Wealthwise garden! We thought we would come outside on the hottest day of the year and gently fry while we do this! Straight into our first question – what excites you about the current investment outlook? What gives you pause for thought?
HM: Well, what excites me is probably having a G and T after this! On the investment outlook, though, there are a few things. First of all, investors over the last decade have been pushed further and further down the risk curve in search of yield – and now, over the last few years, fixed income yields look relatively attractive. So, for investors, we can make relatively diversified portfolios with a decent return as well – so that is an opportunity and quite exciting too.
Now, I am working on the bespoke investment desk at Mattioli Woods, where we are running high net worth money for clients. We run strategies and, within that, we have about a 30% risk ‘bucket’ in thematics. So something that is an opportunity at the minute is healthcare.
The valuations in healthcare are amazing and, if you believe the demographics, there are now more people over the age of 65 than there are under the age of five – and they are all demanding better healthcare in old age. So that is a really nice long-term hold. We also think there is an incredible degree of innovation going on in healthcare – and semiconductors too.
The world is going to change beyond recognition – we know that – over the next 20 years. That is also, however, the worry – and, more specifically, the worry is concentration risk. I mean, just look at what is happening in emerging markets: you have three companies – Samsung, SK Hynix and Taiwan Semiconductor – that are doing a lot of the heavy lifting. So that is a risk.
Stick to the path
JM: Good start – thank you for that. Let’s move from the broader lens and shrink things down to individual investments. What do you particularly look for here and what would you consider a ‘red flag’?
HM: Consistency. On the bespoke desk, we are building strategies for clients – and therefore every investment has its place. So, if you are a value manager, stick to value, please. If you are a growth manager, please stick to that path. It would be terrible for portfolios if mid-cycle a manager changed their style. So that would be the biggest red flag – for us, that would be a bit like a pilot mid-flight deciding they wanted to be a train driver.
JM: I wondered where you were going with that – I thought maybe it was the pilot deciding to head off to Lagos rather than Las Palmas or wherever! Thank you for that.
Multiple futures
JM: To what degree should professional investors be looking beyond so-called ‘traditional’ asset classes – bonds, cash, equities – and towards what are generally banded as ‘alternatives’? And I guess, within that, you probably need to define what you think of as alternatives – and where should they be looking?
HM: I think they should absolutely be looking beyond traditional asset classes. In our strategies, we currently have about 12.5% allocated to alternatives – so things like gold, structured products and real assets, for example. In an environment that has higher inflation, traditional assets are becoming increasingly correlated – so we have got to look elsewhere. The portfolios we make, we are not trying to predict the future or invest for just one future – we are trying to create portfolios for multiple futures.
Found in translation
JM: Nicely put – and that analogy of risk is a decent segue into my communications question. What is the Mattioli Woods approach to client communication? And, as a secondary question to that, is there such a thing as the ‘right type of client’ – somebody who is going to stick with you through the entire journey and therefore enjoy the full benefit of the Mattioli Woods wisdom?
HM: Thanks, Julian. Trust and consistency are key. I love being with clients and speaking with clients – understanding their objectives, their ambitions, what keeps them awake at night – and, if we can understand that, we can make them a genuinely meaningful portfolio. A lot of what we do is translation – taking complex ideas and distilling them down – which I think is so important.
What we want our clients to be able to do is to leave a meeting with us and go and speak to their best friend at a dinner party and tell them, Oh, Mattioli Woods have AI in the portfolio – and this is why; Mattioli Woods have infrastructure in the portfolio – and this is why. And if they can do that, then I think we have done a good job. In terms of the perfect client, and speaking personally, it is the ones who are most engaged – and often those are the ones who are most interesting as well.
The knight’s tale
JM: Good call. A more personal question now, What was your path into investment and, if you hadn’t taken that path – in an alternative universe – what do you think you would be doing now?
HM: So, my path definitely has not been linear. Indeed, it has been a little bit like a knight on a chessboard – not moving straight but always moving with purpose. When I was a child, I used to come home and, over tea with my grandfather, read the business pages of the Telegraph – and he would talk about his stocks and shares and we would talk about things like compound interest. I then went on and did programming at university – and also worked as a stunt rider on films.
So the programming taught me about thinking strategically and the stunt-riding taught me about risk management and discipline. I then also worked for a jeweller family, buying gold during the global financial crisis – the last time it was up at highs. So all of those things on their own are quite different but actually, when you put them together, it is incredibly useful for what we do day-to-day.
After uni, I joined Brewin Dolphin and got my exams, worked really, really hard – and then, Julian, I was made redundant! There was a massive redundancy round and it really hurt. But, from adversity, hopefully, comes resilience and I quickly found a position at what was European Wealth at the time and is now part of the massive growth story that is Mattioli Woods – £25bn. So, as I say, it has definitely not been a straight journey but I have always known where I wanted to go.
JM: You have always built towards it – and there are loads of alternative careers in there. In fact, it is like you have had a lot of alternate pasts – but they actually were in your past. I mean, that conversation took a knight-like turn when you said you had been a stunt rider, which I guess gives you a decent appreciation of risk – quite apart from anything else. Still, in that alternative universe, which one of those different jobs do you think you might have done?
HM: Oh, I like my clients too much!
‘Portfolio 4.0’
JM: Fair enough – let’s leave your alternative careers in the past! Very good. Soul-searching now, What is the biggest investment mistake you are prepared to admit to and, making it a positive, what did you learn from it?
HM: My biggest investment mistake is probably selling too early. It was back in 2018 and I, with a colleague from Deutsche Bank at the time, made a portfolio called ‘Portfolio 4.0’, which was a technology disruptors portfolio – before it was fashionable. In it, we had Nvidia at four bucks … I know. So it was a good idea – the thesis was right – but obviously that taught me humility.
It also taught me that I need patience and to hold on for the long term – and also the lesson about how great companies can continue compounding for much longer than maybe we thought. Meanwhile, the best investment I have ever made is my wife! She has given me two beautiful girls and, unlike Nvidia, she is still in the portfolio!
JM: Oh, nicely done! I feel like I am hosting Blind Date now, asking these questions – or whatever the modern equivalent of Blind Date would be!
‘Flea’ ridden
JM: Well, you have set things up quite well here and I now have high expectations for our ‘strangest thing’ question – everyone’s favourite on Choice Words. So, outside of work, what is the strangest thing you have ever seen or done?
HM: So … it was on my 21st birthday and I was riding a deaf horse called ‘Flea’ across a beach in Wales, with explosions going off around me and a helicopter going over the top. So that is not exactly everyone’s 21st birthday …
JM: No.
HM: So it was chaotic. It was quite crazy – people falling off horses all over the place. But what that does teach you is that, during those moments of chaos, you stay calm, stay focused, remember your training and keep riding. And I suppose that is not a bad lesson for investment management and the markets we work in today!
JM: Just to be clear here – this was not just a typical day in Wales, presumably? Were you on a film set – and, if so, anything we would have heard of?
HM: Snow White and the Huntsman. It paid for uni, which was good.
JM: Oh, that is a good call.
‘Wisdom compounds over time’
JM: OK, where next? What advice would you have given your younger self in your first day in the business? Normally, by implication, that would mean the investment business – but you pick one!
HM: It is the investment business and, over a decade ago, when I was first in the job, I would say to my younger self, Listen, write as many notes as you possibly can – and stay curious. I have actually been working on something for years I call ‘City Quotes’ – essentially, writing down all the memorable quotes you hear from people you have worked with, fund managers and so on – and it is a massive document now. It is weird that … well, obviously, people change and technology changes but wisdom, I suppose, compounds over time – and so that document is incredibly useful.
JM: And are you going to be publishing that at some point or is that just for you? No? OK – fair enough.
Back to the future
JM: Now, again, you have led me very nicely to my next question – we call this ‘Choice Words’ because of what you do for a living but I am going to ask you for two personal choices now. So two recommendations for our audience – one would be a book, which can be about investment, but does not have to be – and the other is a free choice or a free hit. We have had loads of things so the world is your lobster!
HM: Thank you! This is not really an investment book but it is The Psychology of Money by Morgan Housel. It is just interesting, isn’t it, that we all have a very different relationship with money – yet we all use it every day. I just think it is an interesting read for anyone – whether or not they are in finance – and contains a lot of very good lessons.
JM: Well, it is my recommendation on the money front as well – so very good choice. Second one? HM: For the second one, I would like to do a recommendation to my future self. JM: OK – interesting.
HM: So I would say, Harry Merrison – stay curious, take as many notes as you can, keep listening, be bold, remember the market makes fools of us all – and just try and keep that excitement you had when you first opened the paper with your grandfather as a child.
JM: Just out of interest, was he in finance?
HM: He was in a lot of things!
JM: Nicely mysterious – OK, I won’t pry! That is very good – I like the metaphysical element of giving a recommendation for yourself. I am also looking forward to having a regular click on this particular video as you come back every year to remind yourself! Great ‘Choice Words’ choices – on so many levels, Harry. Thank you so much – and thank you also for the entire conversation here in the sun. We have not melted and it is time for that gin and tonic. Thank you so much for talking to us.
HM: Thank you very much for having me. I have really enjoyed it.
JM: And thank you very much for watching. Do look out for further ‘Choice Words’ episodes as they are published.
