Choice Words: Matt Ennion, head of collective research at Quilter Cheviot

As for investment red flags, Ennion highlights the potential risks of funds enjoying strong growth on the back of market trends. “One example would be in the growth markets pre-Covid, where there were a lot of funds that performed well – often on the back of perhaps newer fund managers you may not have heard of,” he explains.

“Then, after a couple of years of performance, people were out there, saying, This is a really good fund – but you just have to question how much of that is pure beta and they are just looking to raise capital or whether there is a bit of alpha in there as well. And our job, obviously, is to pick that up – what is driven by momentum and what is driven by real alpha generation?”

Opportunity cost

Later on, the conversation turns to investment mistakes and the lessons learned. “There are lots of funds you pick that you think are good at the time – and are genuinely good funds – but perhaps they don’t work for whatever reason,” Ennion begins. “So whether that is actually considered a mistake, I don’t know – some people would say so; others not.

“For me, though, mistakes are more around opportunity cost – so doing the work but not actually investing, not committing capital, not having the conviction and then missing out on return. In that respect, I have been around long enough to go back to the Euro crisis – just after the global financial crisis – and at that time I remember sitting in investment committees at a different business, not Quilter.

“We had been sitting on cash and gold, which had done us pretty well for a period of time – so performance was OK but the problem was just getting capital back into the market. Month after month, the data would look terrible and you would think the right thing to do was stay in cash. But then, in 2011-ish, the market started to rally ahead of all the data turning – and we would sit in cash and not necessarily commit.

“So you are then giving back a lot of your outperformance – and that would be when you learn a lot about how difficult asset allocation is; how economies and markets are not the same thing; and how trying to time markets is incredibly difficult. I suppose, ultimately, you learn about trying to stay invested – that it can be just a few days in the market that account for a lot of returns. And, if you’re not invested, you miss them.”

Transcript of ‘Choice Words’ Episode 10:

Matt Ennion, with Julian Marr

JM: Well, hello and a very warm welcome to another in our series of ‘Choice Words’ videos where we get the chance to speak to key decision-makers in the world of UK fund research and fund selection. I am Julian Marr, editorial director of Wealthwise Media, and today I am delighted to be talking to Matt Ennion, head of collective research at Quilter Cheviot. Hello Matt.

ME: Hello, Julian.

JM: Let’s jump into my first question – a two-parter – what most interests you or excites you about the current investment outlook? What gives you pause for thought? [EDITOR’S NOTE: This interview was recorded shortly before ‘Liberation Day’.]

ME: Thanks, Julian – thanks for asking me along. It is a really volatile market out there at the moment so, as usual, there is a lot to a lot to worry about. But one area that particularly excites us – and it is an area of the market we are slightly overweight in with our portfolios at the moment – is emerging markets and Asia as well. We have just come back from a research trip over in Asia and it is really noticeable how positive the environment is out there, how dynamic the economy is and how things are really moving forward.

That is not something you would necessarily get from the commentary you read over in this country. Speaking to a lot of fund managers out there as well as people on the street, however, the consumer is very confident and the shops are busy and full, with queues out the door. And, speaking to fund managers, a lot of businesses are really taking hold of AI and that is feeding in and making them a lot more efficient. So there is real positivity out there and, given where valuations are – and in China, particularly – it is a really interesting area.

Counter to that, on the more worrying side, I suppose domestic UK just looks quite troublesome at the moment from an economic perspective. And within that and, I think, UK smallcap – as much as they are cheap and have been for a long time and we have seen some level of takeover activity there – it feels difficult, over the next six or 12 months, to really get excited about what is going to drive that forward. Even though, longer-term, potentially there is some good value to be had there.

JM: Thanks for that. And as the co-author of the 2011 ‘classic’ Investing in Emerging Markets: the Bric Economies and Beyond – available now in all good skips behind second-hand bookshops – I am delighted to hear that first part of your answer.

Useful diversification

JM: Good answer – thank you. Totally unconnected, of course, I am going to move to on to something that has been driven by momentum and marketing departments – to what degree should investors – and, by extension, those who advise them – be looking beyond so-called traditional investments such as bonds and equities and into more alternative arenas? And are there any alternative arenas you are looking at?

ME: Yes, it is an area of focus for me. I cover private equity and infrastructure – we largely use the investment company sectors to get exposure there – and I certainly think professional investors should be using those spaces. It is not necessarily for all clients – and, of course, we need to understand what clients’ needs are ultimately.

Still, I think diversification is really important and so some exposure to absolute return funds or infrastructure or private equity – those sorts of sectors – is useful at times within portfolios. Certainly, if we see drawdowns, something like an absolute return fund can be quite helpful. Admittedly, some of those have not always worked particularly well but, with the research team we have, we have selected some good ones there. So that has certainly been helpful for some of our clients at times when it has been needed.

Thinking specifically, private equity is obviously an area that has grown over the years. It is a market that has been around for 30 or 40 years, really – so relatively new – but it has grown significantly to a trillion-dollar industry now. And a lot of businesses are staying private for longer – you hear that all the time – so gaining exposure to some of those top-quality companies is important for clients.

Now, clearly there are trade-offs between the type of structure and how you access the investments there – and also liquidity. Clearly, some of those investments are not so liquid. So you have to understand if clients can withstand some of those risks. Still, it is certainly a market where there are new structures potentially coming through and so we are doing a bit of work there to understand the impacts of those and how they may take hold. Certainly it is an area we should be exposing clients to – where it is the right thing to do.

Second innings

JM: Excellent. A more personal question now – what was your path into investment and, in a parallel universe, if you had not taken it, what do you think you would you be doing now?

ME: I don’t know what I would be doing now! But it was pretty much straight out of university. I went to Liverpool University, studied economics there, came out and wasn’t quite sure what to do. I didn’t really know too much about the financial industry, to be honest! I spent a year in Australia playing grade cricket and, having come back from that, I got the opportunity to take a graduate role – at Quilters, actually, in Liverpool.

I spent two or three years up there – learning the investment management role, effectively, and about the industry as a whole. So that was a really good sounding-board for the role and understanding the broader market itself. And then I moved down to London in, I think it was, 2000 and here I am today, back at Quilters – a lot more focused than I was that first time! – in the head role of collective investment. So that is my career.

What I would have done prior – I don’t know. I guess, in terms of the crossroads of that period when I chose to join Quilters, I was playing a lot of cricket – and playing at a reasonable level. So, at that point, I suppose I could have gone and tried to make something out of that. It was something I was thinking about at the time – I am not sure I would ever have been a superstar or anything like that but it was a certainly an option. And, whether that had gone well or not, I don’t think I’d still be playing today!

JM: Well, that is fascinating to hear – especially as an utterly mediocre cricketer! And if you play grade cricket in Australia and you survive to tell the tale, then you have done pretty well. It is a good standard.

Unsafe hands

JM: OK, this is the oddest question I ask but there you go – outside of work, what is the strangest thing you have ever seen or done?

ME: I’ll go back to cricket. It may not seem that strange but, as a cricketer, it felt strange at the time. I was playing club cricket at a decent level and, in one team, there was always a batsman who would come out and not wear any batting gloves – and, when you think about it today, pretty much everyone wears helmets and protection and they are padded up.

Yet they would always come out and bat without batting gloves – they would have the pads on, but no gloves. And, having been a batsman and broken numerous fingers – even with gloves – you know, it put you on edge as a fielder just watching it. Because obviously, in club cricket, you get some decent bowlers and some quick bowlers – but he didn’t actually ever break any fingers.

JM: Maybe he was extra motivated by the lack of protection! Did you ever ask him why he did that?

ME: No – I think it was just the fact that it felt comfortable – he didn’t feel comfortable wearing gloves. It was restrictive and, as I say, he never actually broke any fingers. So maybe it was motivation not to get injured – but it was quite an interesting one and I’ve never seen anyone else do it before or since. It was very unique situation.

JM: It is like that thought experiment on how the best way to make everyone drive safely is not to worry about signs or road markers but to have a big spike on the steering wheel as that tends to concentrate the mind on driving carefully – maybe that was his view! So fair enough – that counts. Well done!

Back in time

JM: Well, if you find a way, do let me know – and I will do the same. What else have we got? What advice would you have given your younger self on your first day in the job?

ME: I suppose it would be some of the stuff we have talked about – certainly around investing early as a youngster. That is one mistake pretty much everyone makes as there are always a lot of other things you can spend your money on. You don’t necessarily have that much when you’re younger either and you grow up and have a family and buy a house – so there are always other things to think about.

But, even if it’s just a small amount, on day one, just invest some capital and do it regularly. Put it into a tracker or whatever it may be and just leave it there and, with a fair wind, over a 30 or 40-year career or however long it might be, it should be quite a substantial sum at the end. If I had my time again, that is what I would have done.

JM: Fair enough. When I edited a consumer finance magazine in the 2000s, every November we would run a cover story on ‘How to retire early’ with all the usual good advice – except the real answer would have started, ‘First build a time machine and go back 30 years …!’