WARREN MCLEOD PORTFOLIO MANAGER, OLD MUTUAL INVESTMENT GROUP

How did you get involved in financial services –was it something you always wanted to do?

When speaking informally to friends and people I meet outside of the workspace, upon hearing my profession, a frequent question is, “When and how did you get involved in financial services?” My answer relates to my interest in mathematics at school. I was guided to investigate the field of financial services, particularly life assurance. The suggestions were very broad. Looking at life assurance products, I understood the objective, but I also wished to understand how to use the financial markets to achieve the suggestive guarantees of the products. My subsequent studies at university were in the field of statistics and finance – together they tied the two pieces together.

What was your first investment – and do you still have it?

I knew that being a student, I was likely to start my career in debt. I convinced my father to loan me a small sum of money. I knew the investment would need to cover the money I owed him, but simultaneously I needed it to grow to cover some of the debt I would accumulate.

Consequently, I invested in an Old Mutual endowment policy. The endowment policy matured soon after I began working, which I then used to make a payment on a bond I had taken out to purchase a townhouse and to return the money I owed my father. That was one of my best financial moments!

What have been your best – and worst –financial moments?

I have learned the importance of understanding one’s investment. A highlight has been managing a global equity portfolio based on a quantitative strategy, the Old Mutual Global Managed Alpha Fund. Less so now, but in the past, many people associated a quantitative strategy to a ‘black box’ strategy in which they believed there is little understanding of the reasons for holding a particular stock. My view is that the strategy is a glass box. Many of the measures used by fundamental managers to determine a fair value to pay for a share are the same or similar to measures used in our global quantitative strategy. The characteristics considered include the quality of a company, the value, the earnings growth of a company, as well as other common measures of a company. Our strategy is a systematic process that enables us to explain the reason for holding the positions in the portfolio. It is a glass box, not a black box. This strategy enables us to manage a global fund locally, with our quantitative systems easily managing the huge quantity of data related to companies that are the shares in international indices that often consist of more than 3 000 shares.

What are some of the biggest lessons you have learnt in and about the finance industry?

I have participated in financial investments for 25 years. There have been difficult times; the most difficult is managing a fund which, at times, is behind expectations. But I have made it through low times by having patience, not being overconfident, and adhering to the investment strategy and not making irrational decisions. Markets are volatile, which results in the ups and the downs in performance. Perfection does not exist in financial markets.

What makes a good investment in today’s economic environment?

In line with our investment strategy, currently, a portfolio that displays the characteristics of value, a strong relationship with the direction of a positive global equity market, and risk diversification is an attractive portfolio. The economy is not static and, accordingly, the characteristics of our portfolio change through time. In February 2022, Finance Minister Enoch Godongwana amended the maximum offshore investment limit for Regulation 28 retirement fund from 30% of assets to 45%. This gives an investor a greater opportunity to gain returns, since effectively the market has ‘expanded’. Our global managed alpha equity portfolio is a means of expanding an investor’s exposure to the global equity market.

What finance/investment trends and macroeconomic realities are currently on your watchlist?

Expanding one’s understanding of the market and investment strategies requires keeping up to speed with the research and ideas of others, which can be gained from published books and articles. As mentioned, the strategy I employ is based on the relationship between shares’ returns to the measures of value, earnings growth, and further financial characteristics of shares. Many will take the relationship for granted, but is there evidence that such a relationship does exist?

What are some of the best books on finance/ investing that you’ve ever read — and why would you recommend them to others?

Reading Malcolm Gladwell’s book Outliers emphasises the need for evidence and not simply accepting what we believe is logical and obvious. An example he gives, which highlights the need of evidence, is that most Nobel Prize winners in physics have an IQ above a certain level, but from that level, “additional” intelligence does not enhance the probability of obtaining a Nobel Prize in physics, which many of us assume.

What advice would you give to investors?

The financial realm is expanding and, due to technology, it is open to virtually all. We can gain from this opportunity, but we can also be burned. This emphasises the need for understanding our investment decisions.