Given investors must have at least one eye on the future, Portfolio Adviser wanted to offer readers an idea of how some of the next generation of investors view the world. In this instalment of Generation Next, Luke Butcher, investment analyst at Odyssean Capital/Odyssean investment trust, shares his views on the future of the industry, AI, and UK small caps.
Is there a particular asset class grabbing your attention at the moment? Why?
At Odyssean we focus primarily on UK small caps. We see lots of opportunities for high conviction stock picks in our market today, with many companies trading at historic lows and significant discounts to international peers.
There are various factors that may be contributing to persistent mispricing at the smaller end of the market, including negative fund flows, illiquidity, general pessimism around the UK economy and less research coverage.
We think this will revert at some point in the future, as some other parts of the equity market already have. Many of these companies are global businesses that generate the majority of their revenues outside the UK, meaning an investment is not a bet on the UK economy.
We believe many of these companies have opportunities to drive value and will re-rate, generating strong returns for the investor. Alternatively, overseas acquirors will continue to make opportunistic takeovers of UK plc at valuation premiums.
How do you see sustainable and ESG-oriented investing evolving from here within the asset class you cover?
I think that consideration of ESG principles is a fundamental component of effective and responsible management of a business. It is also a key consideration for the investor when deciding what to invest in, and what not to invest in.
Today, it can be challenging for the generalist investor to make good judgments and comparisons between companies, especially on environmental issues, given how complex public company reporting has become in this area.
Changes to further standardise and simplify reporting are needed – a concise set of core environmental KPI’s would enable investors to quickly understand and compare company progress within and across different industries. Today, it feels easy for companies to hide amongst the complexity, so I hope this evolves with time.
What will be different about the investment sector a decade from now?
Nothing is for certain, but it feels as though access to information will continue to become quicker, and technology will continue to encroach deeper into the investment process. Investment will continue to democratise, and the pool of active investors may well continue to shrink.
In my view, only truly differentiated approaches built on independent thought will outperform, and these will be even rarer and more valuable a decade from now.
What led you into a career in investment?
I came into this industry more through luck and chance than by design. I enjoy learning about how the world works and this job provides an endless opportunity to do that. It’s been a rewarding journey so far.
The adoption of AI as an investment theme is a widely-discussed topic, are you incorporating the technology into your work processes?
We are incorporating AI into our processes where we feel it adds value. It’s already an incredibly powerful tool to speed up primary research and handle repetitive tasks, and it will clearly continue to improve over time. It’s important to stay on top of developments to avoid falling to a competitive disadvantage vs peers in the market.
Is there anything that has surprised you about a career in investment since you started?
I have learnt quickly that long term and engaged investment is not just about numbers on a screen, it involves real people running real businesses. The human factor can often have an outsized impact on investment outcomes, especially in smaller companies where change can happen more quickly.
Considering the motivations and incentives of key individuals is a critical component of the investment process, perhaps more important than modelling financial forecasts. For me this has added another dimension to investment, and it makes the job even more engaging and interesting.
