11 Jun 2021
07 June 2021 | Jamie Mills O'Brien and Ben Ritchie, Investment Directors, ASI
While not immediately obvious, ‘the Sage of Omaha’ and ‘Jopie’ have a lot in common – integrity, authenticity and a track-record of success. While investors will be familiar with Buffet’s proclamations, on the eve of a summer of soccer we’re turning to Cruyff’s words. After all, not only was he a titan on the football field, he is also credited with transforming Barcelona into a powerhouse of European football. So, what can we learn?
Any successful manager must have the right foundations in place. One of Cruyff’s major contributions to Barcelona was overhauling the club’s training academy. Under his watch, the club’s ethos went from selecting players based on size and physique to one that prioritised technical skill. Lionel Messi is a product of that conversion, and it laid the foundations of a free-flowing, attacking style that dominated the game for the next 30 years.
“Football is simple, but it is difficult to play simple.” John Cruyff
Asset managers also lay foundations that allow them to perform across a variety of market cycles. For us, this means robust investment processes and effective risk frameworks. To perform, we need ideas – and this comes through in-depth research and the creation of a dressing room where individual flair goes hand-in-hand with idea sharing and peer review. This includes nurturing and empowering the talent of the future. And at the heart of it all? Open and enduring client relationships. We believe these factors combined are the foundations for good long-term results.
“Investing is simple, but not easy” Warren Buffet
Asset management – like football – has seen time-horizons compress year after year. Markets are increasingly obsessed with the next quarterly earnings numbers. The focus has moved from long-term growth to short-term returns. Average fund turnover has increased – coinciding with average fund returns falling. We believe such short-termism can often hinder success.
Again we turn to Cruyff. After all, his Barcelona team won three successive titles (1991-93) with largely the same squad. He didn’t run out and panic-buy when things went wrong or snap up some wunderkind after one good game. The lesson for asset management? There is value – and skill – in being able to stay the course.
Another facet of successful management is being prepared to develop contrarian views.
Another facet of successful management is being prepared to develop contrarian views – to take measured risks and do things that may seem perverse to industry peers. This can mean eschewing large parts of the benchmark or backing one’s best ideas with meaningful capital. At times, it also requires the courage to call something ‘noise’ even as the market prices it as a ‘signal’.
Cruyff would approve. In an era of 4-4-2 formations, he instead chose to play 3-4-3 – a style favouring attack over defence. He also played England’s Gary Lineker, the clinical goal poacher, out on the wing. The pundits crowed – it seemed ridiculous. But the results spoke for themselves: Lineker created the opening goal in the 1989 Cup Winners’ Cup final.
No international tournament is ever without controversy. However, there are things we can do to mitigate most upsets. Indeed, the most successful franchises, football teams and companies rely on sound governance and the alignment of interests, from the boardroom to the customer or supporter. For us, this involves integrating ESG – environmental, social and governance – considerations across our research, valuation process and portfolio construction. In doing so, we believe we can build a fairer, more sustainable future for our clients, shareholders and society as a whole. Proponents of the European Super League take note!
Europe is a deep and diverse market. It offers exposure to a rich array of structural themes, from its leadership in ‘Responsible Capitalism’ and ESG to the digitisation of industry. The tide is turning on the old narrative of Europe as a cheap, structurally challenged market. As active asset managers, we have the opportunity to cherry-pick companies from across the continent. The skill, however, is to combine these into a cohesive whole.
To start, though, we must break with Cruyff. As a manager, he eschewed coaching his defenders and goalkeeper – famously saying he’d prefer to win 5-4 than 1-0. While entertaining to watch, we think this is a little too cavalier for your average investor. Instead, we believe the core of a portfolio should be robust and dependable. That can sometimes mean investing in companies with unexciting growth rates, but less volatile returns. Sure, they may not score many goals, but they probably won’t concede many either. Consumer staples such as Nestle, or high-quality pharma businesses, such as Novo Nordisk, potentially fit this profile.
We then seek to complement these stalwarts with a midfield of creative innovators. Europe has many to choose from. Take Danish firm Ørsted, which operates offshore windfarms, or Knorr-Bremse, which is active in green transport technologies. Elsewhere, Dassault and Nemetschek are involved in the digitisation of industry. The list goes on.
Finally, we move up the field to the striker. A mercurial and often misunderstood role. Success here requires versatility and an eye for the goal. Think Italy’s Del Piero or, more recently, Spain’s Fernando Torres. Europe boasts many companies with similar characteristics: less mature, but fast-growing and gaining market share from larger rivals. In our view, we can find examples in Europe’s increasingly eye-catching tech space, such as Adyen in enterprise payments and Prosus in consumer internet.
So, there we have it. Fund management by way of Johan Cruyff. However, as the summer games kick off, perhaps we should leave the final word to Gary Lineker: "Football is a simple game: 22 men chase a ball for 90 minutes and at the end, the Germans always win."
Companies selected for illustrative purposes only to demonstrate the investment management style described herein and not as an investment recommendation or indication of future performance.
RISK WARNING
The value of investments, and the income from them, can go down as well as up and you may get back less than the amount invested.