Kristian Fok: I think the analysis of just putting value and growth together is too simplistic. In this environment, there’s probably been other decisions like resources and financials. Even though you think it cancels out, it’s amazing the number of times you get a growth manager and a value manager and they talk about the same stocks, both holding them but for their own reasons. Granted, there are times when you want to have a growth manager that’s not investing in financials and a value manager’s starting to get in. But to think of value and growth as mutually exclusive I think is a bit wrong. There is a lot of overlap. So there is benefit in having the two styles.
Russell Clarke: A question worth honing in on – should you use deep style managers in a concentrated sense, because typically a deeper style manager will be more concentrated by their nature. And that is a very different animal to a more style agnostic manager that then might run a concentrated portfolio. It’s probably worth getting people’s thoughts just on how they view those different types of managers because you can build very different portfolios.
Steve Carew: I think the answer to that is that if you have a deep value manager or a deep growth manager then you look to your appropriate benchmark and see if there’s alpha there. You don’t benchmark them against a style neutral benchmark and argue that a risk premium is in fact an alpha.
Russell Clarke: What if you do use managers who are very concentrated and they do underperform significantly, perhaps on a broad benchmark rather than a style-based benchmark. Because that is a real problem in the real world. Theoretically you should take the really highly style-tilted managers and throw them together in a portfolio and get a style neutral portfolio, hopefully with lots of alpha. In the real world that never happens. And the risk is that somewhere down the fiduciary chain – the management team, the investment committee or the board will be saying, “What, we’ve got those guys? They’re 20 per cent under benchmark!” And they’ll want to fire that manager and keep the managers who are doing well, whereas they should be doing the exact opposite. But it’s a really, really difficult thing to do. We’re not a big fan of deep style managers, precisely because of that fiduciary conundrum.