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Laura Foll discusses what it's like to be a Fund Manager - YouTube
Channel: Steps to Investing
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Hello and welcome to the Steps To
Investing YouTube channel. My name's
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Simon and today we are very privileged
to be talking to Laura Foll, who manages
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two investment trusts, or should I say
co-manages two investment trusts, one
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being the Lowland investment company
and the other being Henderson
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Opportunities Trust. We'll come to what
that means and what a fund manager means
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in a moment. Just to say before we start
though that today we are going to be
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talking about some companies, and that
isn't a recommendation to buy, sell or
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hold that company and of course it's
worth remembering that all investment
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carries some degree of risk and that
investing doesn't necessarily mean that
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your investment will go up in the future.
Well I'd like now to welcome Laura Foll
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to the studio. Laura hello, how you doing?
Now Laura is fund manager on two
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investment trusts managed by Janus
Henderson. So she co-manages something
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called Henderson Opportunities Trust and
also something called Lowland Investment
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company. So Laura first question can you
explain to us what is a fund manager
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what's a like job description for you look like? Yep, so essentially what it means is
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managing money on behalf of clients. So
in the case of investment trust, a fixed
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pool of money that you're managing with
a particular objective in mind. So in the
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case of some of the Trust's that I run,
that objective would be both growing
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the capital, so growing the pool of money and also growing income for
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shareholders. So in the case of Lowland
we try and pay a really predictable
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quarterly dividend so those would be
investors that want an income stream
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from their investment. So it could be typically perhaps a retired investor somebody
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who's looking for a regular income
something like that? Yeah it really depends. So for
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Henderson Opportunities trust that... the
objective of that trust is purely
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capital growth. So I think that would
suit someone who's perhaps a bit younger
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with a much longer term timeframe. So it
really depends what type of trust you're
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managing as to who it would suit. But
essentially always fixed pool of money
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that I'm investing on the client's
behalf. And when you're doing that what
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does...when you're investing, what are you
investing in? What are the kinds of
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things that you buy? So the two trusts that
I run would be UK only so it essentially
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be investing in
UK listed companies, with the objective
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in mind. So for Lowland, be a relatively long list
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of holdings, we'd have about 120
companies within there. They'd almost all
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be listed on the UK, a few Irish
exceptions to that. UK companies
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essentially? Yes although the actual
revenue would be often very
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international. I was just going to come
to that because obviously UK companies
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listed on a UK exchange so the London
Stock Exchange for example don't
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necessarily get all their money from
selling stuff in the UK right? Exactly so
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Lowland would be about 50/50 UK and
international that would actually be a
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lot more domestic than the benchmark
which we follow, which is the FTSE All Share
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Could you explain to me what a benchmark is, how does a benchmark work? Yeah so essentially
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a benchmark is a way of tracking our
performance. So we in Lowland would
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compare ourselves to the FTSE All Share
and it's just a way of us saying, each
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year you know have we done a good
job? And if we outperform the benchmark
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normally on a three-year basis because
we're thinking long term in our
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investment decisions, then that would be
a good thing and if we underperform on a
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three-year basis that would be a bad
thing. It just gives us a kind of tidal
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mark if you like to say well have we
done well or have we done badly, but
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we're not tracking it, we're not trying
to match it in any ways it's literally
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just a benchmark. A comparison essentially? Yeah exactly. And the benchmark you
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mentioned the FTSE All Share
essentially that's just a group of
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companies isn't it? Just an index that is
the technical test? So the FTSE All
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Share would be a mixture of the FTSE 100
which is the largest companies in the UK,
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the largest hundred companies and the FTSE 250 which is the next 250 companies and
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then a few smaller companies as well but
the vast majority of that fits the All
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Share benchmark would be made...the biggest companies. And so what does a typical day
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in fund management like? Is there such a
thing as a typical day? Not really I mean
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the average day for me would
probably be coming into the office maybe
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seven, half seven. It would be looking at the
company results if there are any and
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deciding what to do about those. Now
generally we are long term investors, the
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average holding period for Lowland is about five years. So I wouldn't normally trade
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around results but when company results
come out I'll be sure to look at them just
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to check that they still fit our
investment thesis. So that would normally
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be the beginning of the day and then
throughout the day I'd be spending my
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time sometimes meeting clients, sometimes
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meeting companies. Probably most of my time is
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spent meeting companies and James and I, who run the trust together, last year
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we met about 400 companies. Wow. So
that's how we run it, that's how we pick
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companies to invest in. So it's
really just churning through your
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company meetings. James always says we
kiss a lot of frogs, we meet a lot of
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companies that we don't want to invest
in but hopefully we pick a few within
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that that we think yeah that's a really
good company I definitely want to invest in that.
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And that company meeting will be
quizzing the management about what
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they're doing, where they're going, how
they run the company? Exactly but it's
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not an antagonistic meeting it's very
much just getting to know the management
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particularly in the smaller and
medium-sized company area which we
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invest quite a lot in. It's really
important to know the management because
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there's not a big management bench
behind the CEO and the CFO, so the CEO
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and the CFO are really driving that
company and so you need to have faith in
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them to run the company because there
isn't anyone else for Lowland and
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that's particularly in a small company
area. So it's really important to sort of
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have trust in them and that's why we
feel it's pretty important to meet them.
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Right okay. So thinking about, sort of you in your
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job how do you get into it what was
there was the motivation for being a
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fund manager? There was no grand plan, I
graduated in 2009 so it's in the middle
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of the financial crisis right so it was
literally a case of I need a job apply
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for anything and everything. I
applied for law jobs.
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I applied for investment
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banking and Henderson at the time was
Henderson not Janus Henderson, really
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thankfully did not cancel their graduate
scheme. So yeah joined Henderson on the
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graduate scheme and at the time James
Henderson who I work with now didn't
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have anyone helping him so it was very
fortuitous that I kind of ended up with
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James and I've been there ever since.
Right okay. I'm just thinking about what you've done since.
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One of the questions I get asked a lot when I
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meet, you know first-time investors
specifically is you know, this idea
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of a fund manager...how'd you become
a fund manager? Presumably there's some
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training involved, qualifications, you
can't just sort of turn up and do it.
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Yeah there's a fair few qualifications
that you need and you just do them on
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the job. So for example the investment
management certificate it's the first
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exam you do. You do that pretty much
straight off the bat once you join and
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then you also do the CFA
Chartered Financial Analysts is I think
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one that stands for and it's a three
year exam. So yes there's quite a few
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exams that you need you don't just turn
up and start managing money because
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obviously there's quite a lot of jargon
in the industry, good and bad and you need
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to...you need to know what you're doing, you
know you're managing money on behalf of
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other people. It's a responsibility and
so you need to have the
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qualification before you do that. I was
going to ask you about that of course
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because you are managing, you know for
private individuals, for institutions and
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that must be a kind of weight to carry
on your shoulders to looking after
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people's money. How do you sort of deal with that you know with that responsibility?
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I think that was one of the first
things, in my sort of interviews for
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Henderson that people were trying to
get across. I think you need to be the
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type of person that, you will make
mistakes in fund management 100%
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If you're getting things right 55%
of the time that's you
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doing well. So you can't be the type of
person that if you do make a mistake you
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can't come into the office the next day.
You need to be the type of person that
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can withstand that and move on as
difficult as that can be, because I think
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as fund managers we are all reasonably
opinionated and we do like to think
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we're right but a lot of the time we're
not and you have to be ok
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with that and just I think a huge part
of it is just learning where you've gone
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wrong and I think every year I'd like to
think that I've become a better fund manager
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because you learn, well I won't do that
again that was a mistake
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and I think that's why it really
benefits me working with the likes of
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James he's been there in upwards of 30
years. So he's seen economic cycles before,
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he's seen the types of companies that
don't make it through a cycle and it's
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really important for me to have that
guidance of him sitting next to me. And I
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suppose that must be an aspiration as
well to be able to do that kind of
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long-term thing for yourself and have
that you know experience to be able to
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look back and say that you've done
it for 30 years and you've seen all
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those different things happen. Exactly
and it's really beneficial. So I came in
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2009 and in autumn 2009 so at that point
the market was already turning upwards
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after the crisis so I've never seen even
though I've been here almost ten years
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I've never actually seen a recession and
I've never seen a proper bear market and
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it's really important for me to be
talking to James so at the moment at the
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time that we're filming there's a lot of
turmoil in the UK there's Brexit markets
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are quite choppy and it's really helpful
for me
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talk to James in times like this because
he's seen it all before. I was going to ask you
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about that actually because this, you
know, you're very much about your
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companies, what the company does,
what's the prospects for the company but
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how do you deal with that, I don't know
if noise is the right term, but all that
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stuff that's happening around?
I mean Brexit is a really good example
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at the time as you say, at the time we're
talking this is right at the top of the
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agenda in the in the UK. How do you sort
of manage that stuff around the
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individual companies? Yeah I think it's
an opportunity in a way. I mean the UK or
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domestic UK companies are trading at a
big valuation discount to the wider
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market and what I mean by that is as
fund managers we use valuation metrics
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just as a way of judging individual
companies and seeing what value they are
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relative to the earnings the company make.
So the price you pay relative to what
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you think you're going to get in the
future essentially? It's the price you
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pay relative to what the company is
earning. Right okay. And domestic UK
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companies because of Brexit, because of
political uncertainty are trading at a
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valuation discount to the wider market
because people do have that question
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mark about okay, well we don't know who
the prime minister is going to be, we don't
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know where stering...what the pound is going to be and that presents an opportunity for
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fund managers like us that are willing
to invest in the UK for a period of 5, 10
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20 years. If you're willing to maybe
face a bit of short-term volatility some
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of those companies are really excellent
companies that we want to invest in. So I
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think it's just trying to definitely
listen to the noise and don't be sort of
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insulated from it, but if you can find a
good quality company that we think is
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trading quite attractively then
just go ahead and buy it and just try
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and screen some of it out. Yeah. We need
to talk about risk because there's
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no way that you can talk by
investing without thinking about
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risk. How do you manage risk in your
investing portfolio. Yeah we think the
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best way to manage risk is diversity.
So for Lowland we have 120 holdings and
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we're trying not to run it on any
thematic basis. So we're not saying well
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we think the US economy is going to grow
next year and therefore we're going to
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invest heavily in UK listed companies
that are exposed to the US. That's not
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how we run it at all. It's very much
120
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companies we're really aiming for those
to follow different cycles within cycles.
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So that if and when there will be a
recession at some point in the UK and
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globally, but we want these companies to
be acting differently when that comes. So
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some will be for example biotech
companies that won't respond to economic
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news at all they'll just respond to
their own through clinical trials and
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readouts and things like that. Some will
be industrials but within that they will
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have different cycles and will be
exposed
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aerospace, some will be exposed to
defense that kind of thing. So it's just
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it's not any sort of hedging or anything
complicated it's literally just we hold
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a long list of companies doing different
things.
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So on a sort of scale of one to ten other
companies that you, that the
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investment trust that you work on, are they of risky or are they not risky? How would you
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assess the risk they would be being
exposed to? As in the underlying
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companies or the investor? The investment
trusts. So I would say of the two that I
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manage, so Lowland and Henderson
Opportunities trust. Henderson
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Opportunities trust has roughly sixty
percent in AIM. Which is a very small
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market in the UK. That would be riskier. AIM has less
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regulation than the main market. So we've
seen some widely publicized failures on
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AIM. you know you've had Patisserie
Valerie, you've had Conviviality which
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was an alcohol distributor. Effectively
you get written down to zero so there is
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definitely a higher risk on the AIM market
than there is on the main market. It's not
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to say the main markets not risky.
It's just varying degrees of risk so I
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would say of the two that I manage
Henderson Opportunities trust would be
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the more risky. It would be the more
volatile and therefore that would be
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better suited for someone who's willing
to put up with a bit of that risk but
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maybe has a very long time horizon. Okay. We've talked all about buying,
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how do you know when to sell? When
is the right time to sell a company? Is
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there a right time to sell a company? A more difficult decision I think.
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The way we run money is the
quite valuation driven, so generally when
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we're exiting positions it would be
because we think they've reached what we
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think is fair value or in some cases a
bit too expensive. So it would be when
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that valuation multiple has crept up
versus history or versus similar
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companies that are listed and we think
well that looks a little bit expensive
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now time to move on and
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we'll find...well we'll hopefully find
another company that is at an earlier
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stage, that is more cheaply valued. So
that in an ideal world that would be
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when we would move on. There will also be
situations where the investment thesis
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that we thought we were buying into
hasn't played out. Right. So maybe there's
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been more of a competitive backdrop than
we thought, maybe there's been cost
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pressures and the margins haven't been
what we thought, you know there will be
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times when we get things wrong and if
that fundamentally changes the thesis we
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just need to, you know be upfront with
that and move on. So there's a mixture of
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the reasons for selling. One would be
kind of the right reason where the
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reason we bought the company is paid out
and time to move on and sometimes we get
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things wrong and you just need to admit
that and move on. We've nearly run out of time but I've
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got one final question for you.
What's the best thing about your job?
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Definitely meeting companies. We meet
some really weird and wonderful
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companies. The first company I ever met
was a salmon farmer, you know I learned a
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lot about salmon farming. Didn't think
I'd ever learn about that in finance but
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there you go. I just find that really
fascinating and I think part of me
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thinks it's very...it's a real privilege
to meet company management especially
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one's that have been very successful you
know. I'm just a fund manager and you're
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getting to meet these people that have
really built up companies in some cases
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from scratch and I just think that's hugely
impressive and it's yeah, it's a real
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privilege to get to meet them and get to
know them and question them about it. Laura
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thank you for that it's been a
fascinating conversation and thank you
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for spending the time. And thank you
for watching! If you would like to catch
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up on previous episodes, they're
available on the Steps YouTube channel.
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All that remains for me to say is thanks
again and we'll see you next time
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Goodbye.
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