time for fund managers to hit the moneyball

This weekend, Brad Pitt fans will be queuing for his latest blockbuster, Moneyball, about a baseball coach who follows an unconventional path to scouting and building a team though complicated statistical analysis, or sabermetrics.

time for fund managers to hit the moneyball


It’s a true story apparently and, according to the blurb, our hero Billy Beane makes use of research from a young Yale economics graduate Peter Brand, who has radical ideas about how to assess players’ value, beyond their reputation and star appeal. I’m yet to see it, but I’m guessing the stats-based approach yields success.

Is fund management like being a baseball coach? Well, stick with it, because I would contend building a winning team of stocks based on quantitative research – with little or no regard to a company’s overblown reputation, ratings or market noise – can yield interesting results. 

How many fund managers and analysts get carried away with a stock based on the fortunes of a sector or overegged earnings forecast? Similarly, how many fund managers will hold a stock, say BP or HSBC, just because it has a high index weighting, yet privately fret about its stagnancy? Too many, I’d say.

Compelling stories

Investors love a good story, and it is up to analysts and fund managers to make sense of the markets and translate it into a compelling narrative which we can all understand. Great if it works – and many a star fund manager has built a reputation this way – but there is another way.

I recently met with James Inglis-Jones, co-manager with Gary West on Liontrust’s European Growth, European Absolute Return and Income funds. Proponents of their own Cashflow Solution, the pair stay put in their West Country office reading only company reports and accounts, before building a list of those stocks with the greatest cash generation – or the least cash for short positions – which tends to go hand-in-hand with a strong balance sheet.

“The starting point is that we take the view that people really don’t know what’s going to happen in the future, and so we don’t bother trying to predict it,” says Inglis-Jones. 

“We spend no time trying to forecast the future because we think it is a waste of time, but there are a lot of people that do take that approach. That’s good because it means, given the characteristics that we think are important about a business, we can buy those companies quite cheaply. These are undervalued and underappreciated by other investors because they tend to be engaged in an exercise of forecasting.”

A desk-bound fund manager doesn’t sit well with everyone, and Inglis-Jones is the first to admit that his approach is not foolproof – though his and West’s long-term track record is impressive. But in an age where active managers are coming under increasing pressure to add value and prove they are not simply index huggers, the unconventional stand a much better chance of being noticed… though only if the numbers add up, that is.



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