Pep talk…the parallels between football and fund management!
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Pep talk…the parallels between football and fund management!

Head of UK equities, Richard Colwell, on trusting in your process, why a valuation and sell discipline is key, and why he loves a 4-4-2

Apologies in advance to non-football fans, but with the unseasonal World Cup in Qatar on the horizon I am once again1 thinking about the similarities between football and fund management. I am less concerned in this viewpoint with the state of the UK equities market – I’ve recently said why I believe the UK remains an excellent hunting ground for investors2 – and more with behavioural finance: why the UK equities team at Columbia Threadneedle Investments invests like we do, how we work, and why we have conviction in what we do. So even if you’re not up on how many times goal machine Erling Haaland has found the back of the net this season (14 in eight games3), there will still be something here for you!

 

Trust the process “I won 21 titles in seven years: three titles per year playing in this way. I’m sorry, guys. I’m not going to change.”4 That was Manchester City manager Pep Guardiola in October 2016 when he felt the need to defend himself after a run of five games without victory. He ended that season trophyless for the first time in his managerial career. Since then, however, he has won four Premier League titles, an FA Cup and four League Cups.

 

Likewise, we’re conviction investors. We’re bottom-up stock pickers. We research firms, looking at them from different angles. We try to fully understand them with active engagement with management, and set out to identify good businesses. We are not particularly interested in economies, monetary policy or politics; we trust that the fundamental research we do and the good companies we buy will deliver success over the long term.

Unconstrained approach Andrew Robertson was a defender who had played for Queen’s Park and Dundee United in Scotland, and was with struggling Hull City, when Liverpool paid an initial £8 million for him5. Since then he has developed into a world-class defender with a value closer to £60 million6. The point being: don’t be afraid to hunt in overlooked areas for underappreciated potential or hidden gems at attractive prices. We do our own research and analysis and find great companies where others simply don’t look.

Valuation and sell discipline Brighton’s Ben White had multiple seasons out on loan in the lower leagues before a breakthrough season with Brighton in the Premier League brought Arsenal sniffing – they bought him for £50 million7. Brighton then repeated this trick with Marc Cucurella who they signed for £16 million and after one season sold him on for £56 million8. Both of them were shrewd signings with potentially years of useful contributions ahead, but the importance of valuation cannot be understated and if you think something is too expensive or priced too high, despite being a good performer, you should look to sell it.

Long-term focus Chelsea are particularly guilty of short-term thinking and impatience. You could build a brilliant line-up from the names they have had on their books who they’ve sold off cheaply because they didn’t perform immediately: Romelu Lukaku, Mohamed Salah, Kevin De Bruyne, Declan Rice and Tammy Abraham. We buy companies for the long term. We know that realising the value from contrarian calls can take years, but we have a long-term focus and our portfolios tend to have high average stock holding periods.

4-4-2 This formation may have fallen out of favour in the modern game – although many teams play a variation of it – but it provides a useful touchpoint for portfolio construction. We have three distinctive categories of holdings we categorise thus:

Defenders (Defensives) 40%

 

Robust, low-risk companies offering superior cross-cycle value over other businesses with similar defensive qualities

Midfielders (Average risk) 40%

 

A wide range of companies, including cyclical businesses with strong strategic positions

Strikers (Higher risk) 20%

 

Companies with significant operational and/or financial leverage, in turnaround situations or in the early stages of their cycle

Think active, act lazy “Behind every kick of the ball there has to be a thought,” said cerebral Dutch maestro Dennis Bergkamp9. Yes, you can run around looking busy, taking hopeful punts here and there, but what about doing less with more consideration? Take Nottingham Forest, who were promoted to the Premier League in May and set about building a squad to stay up. They bought 22 new players10! We avoid over trading. Likewise, if a stock (or a team) is going through a sticky patch we won’t panic and hit the sell button – perhaps it needs a tweak to management or a new regime. Either way, we believe in making our actions count, and behind every trade is a huge amount of thought.

Don’t worry about things you cannot influence There’s a lot of noise in football, a constantly churning media machine spitting out endless articles and thought pieces, programmes and podcasts. Likewise with the economy and the macro outlook, Brexit, Covid, the cost-of-living crisis … none of which we as investors can control. We try to avoid noise pollution and concentrate on our core beliefs, our research, our conviction, our process and the long-term.

3 October 2022
Richard Colwell
Richard Colwell
Head of UK Equities
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Pep talk…the parallels between football and fund management!

1 Richard Colwell, Investing? It’s a funny old game, June 2018
2 Richard Colwell: UK equities: winter of discontent?!, September 2022
3 As at 3 October 2022
4 Independent, ‘I’ve won 21 titles in seven years’ – Guardiola insists he won’t change his ways, 22 October 2016
5 The Times, Andrew Robertson to undergo Liverpool medical before £8m move, 19 July 2017
6 https://www.transfermarkt.co.uk/andrew-robertson/profil/spieler/234803
7 BBC, Ben White: Arsenal sign England defender from Brighton in £50m deal, 30 July 2021
8 Reuters, Huge Cucurella fee shows high price of a little Premier League experience, 5 August 2022
9 https://www.onlinegooner.com/articles/view/5079
10 Daily Telegraph, ‘I regularly get phone calls at 3am’: How to settle in 22 new Forest players, 15 September 2022

Important information

Important Information
For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is a marketing communication. The mention of stocks is not a recommendation to deal.
This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services. Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This document and its contents have not been reviewed by any regulatory authority.
In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) and relies on Class Order 03/1102 in respect of the financial services it provides to wholesale clients in Australia. This document should only be distributed in Australia to “wholesale clients” as defined in Section 761G of the Corporations Act. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.
In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.
In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association and Type II Financial Instruments Firms Association.
In the UK: Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.
In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.
In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland
In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.

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Important information

Important Information
For use by professional clients and/or equivalent investor types in your jurisdiction (not to be used with or passed on to retail clients). This is a marketing communication. The mention of stocks is not a recommendation to deal.
This document is intended for informational purposes only and should not be considered representative of any particular investment. This should not be considered an offer or solicitation to buy or sell any securities or other financial instruments, or to provide investment advice or services. Investing involves risk including the risk of loss of principal. Your capital is at risk. Market risk may affect a single issuer, sector of the economy, industry or the market as a whole. The value of investments is not guaranteed, and therefore an investor may not get back the amount invested. International investing involves certain risks and volatility due to potential political, economic or currency fluctuations and different financial and accounting standards. The securities included herein are for illustrative purposes only, subject to change and should not be construed as a recommendation to buy or sell. Securities discussed may or may not prove profitable. The views expressed are as of the date given, may change as market or other conditions change and may differ from views expressed by other Columbia Threadneedle Investments (Columbia Threadneedle) associates or affiliates. Actual investments or investment decisions made by Columbia Threadneedle and its affiliates, whether for its own account or on behalf of clients, may not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not take into consideration individual investor circumstances. Investment decisions should always be made based on an investor’s specific financial needs, objectives, goals, time horizon and risk tolerance. Asset classes described may not be suitable for all investors. Past performance does not guarantee future results, and no forecast should be considered a guarantee either. Information and opinions provided by third parties have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed. This document and its contents have not been reviewed by any regulatory authority.
In Australia: Issued by Threadneedle Investments Singapore (Pte.) Limited [“TIS”], ARBN 600 027 414. TIS is exempt from the requirement to hold an Australian financial services licence under the Corporations Act 2001 (Cth) and relies on Class Order 03/1102 in respect of the financial services it provides to wholesale clients in Australia. This document should only be distributed in Australia to “wholesale clients” as defined in Section 761G of the Corporations Act. TIS is regulated in Singapore (Registration number: 201101559W) by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289), which differ from Australian laws.
In Singapore: Issued by Threadneedle Investments Singapore (Pte.) Limited, 3 Killiney Road, #07-07, Winsland House 1, Singapore 239519, which is regulated in Singapore by the Monetary Authority of Singapore under the Securities and Futures Act (Chapter 289). Registration number: 201101559W. This advertisement has not been reviewed by the Monetary Authority of Singapore.
In Hong Kong: Issued by Threadneedle Portfolio Services Hong Kong Limited 天利投資管理香港有限公司. Unit 3004, Two Exchange Square, 8 Connaught Place, Hong Kong, which is licensed by the Securities and Futures Commission (“SFC”) to conduct Type 1 regulated activities (CE:AQA779). Registered in Hong Kong under the Companies Ordinance (Chapter 622), No. 1173058.In Japan: Issued by Columbia Threadneedle Investments Japan Co., Ltd. Financial Instruments Business Operator, The Director-General of Kanto Local Finance Bureau (FIBO) No.3281, and a member of Japan Investment Advisers Association and Type II Financial Instruments Firms Association.
In the UK: Issued by Threadneedle Asset Management Limited. Registered in England and Wales, Registered No. 573204, Cannon Place, 78 Cannon Street, London EC4N 6AG, United Kingdom. Authorised and regulated in the UK by the Financial Conduct Authority.
In the EEA: Issued by Threadneedle Management Luxembourg S.A. Registered with the Registre de Commerce et des Societes (Luxembourg), Registered No. B 110242, 44, rue de la Vallée, L-2661 Luxembourg, Grand Duchy of Luxembourg.
In Switzerland: Issued by Threadneedle Portfolio Services AG, Registered address: Claridenstrasse 41, 8002 Zurich, Switzerland
In the Middle East: This document is distributed by Columbia Threadneedle Investments (ME) Limited, which is regulated by the Dubai Financial Services Authority (DFSA). For Distributors: This document is intended to provide distributors’ with information about Group products and services and is not for further distribution. For Institutional Clients: The information in this document is not intended as financial advice and is only intended for persons with appropriate investment knowledge and who meet the regulatory criteria to be classified as a Professional Client or Market Counterparties and no other Person should act upon it.

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