What Trigger’s broom can teach us about investment 


There is a famous scene in Only Fools and Horses, set in a greasy spoon café. In one episode of the long-running BBC sitcom, Trigger, the street cleaner, who is not blessed with the greatest intellect, shows the gang a medal he has received for saving the council money by using the same broom for 20 years.

“But if you’ve had that broom 20 years, have you ever swept any roads with it?” asks Del Boy. “Of course,” replies Trigger. “I’ve looked after it well . . . This old broom’s had 17 new heads and 14 new handles.”

“How the ’ell can it be the same bloody broom then?” asks Sid, the bemused café owner. (I admit I had to find his name on Google — my specialism is global equities, not 1990s comedy gold).

Sid inadvertently posed one of the great questions to challenge philosophers throughout history. Heraclitus asked it about the ship of Theseus; they have asked it for more than 300 years about the Phoenix Hall at the Byodo-in Temple in Japan. Can something whose components have been completely replaced be the same thing?

It is a question you should ask of your investment trusts and funds if you are reviewing your portfolio in the coming weeks because, as many investors learned to their cost last year, things might look superficially the same, but underneath a lot may have changed. What you bought two years ago is not necessarily what you hold today.

The first thing you might want to check is the names of the investment managers. Quite often a fund is listed as managed by a “team” and that may hide many changes in style, skill and level of involvement — the best managers at some fund houses are often promoted until they no longer meaningfully manage the public’s money.

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It is also worth comparing the shape of the portfolio with a report from a year or two earlier. Are the holding sizes similar? If they are not, it suggests different risks are being taken; simply letting winners run and never taking profits leads to an unbalanced portfolio.

Are the geographic spreads very different? There can be good reasons for this, such as the managers believing that one market has become overpriced, though this would normally be explained in their reports. Some managers offer commentary only in their monthly fact sheets. Download and store a few of these over the year for comparison as most fund houses replace the fact sheet online each month, making it hard to find old ones.

Change is not always something to fear. You may find the manager buying different kinds of stock. We would argue that if a fund is to perform well over the whole economic cycle the managers need at times to move from more economically sensitive exposures to more defensive investments. For us, timing this switch is best achieved by monitoring valuations in each area. But many investment houses now have funds that invest only in a small group of stocks — “value”, “growth” or “quality”. They stick rigidly to this marketing dogma even when valuations suggest there is no meat left on the bone.

Investors can look at the composition of an equity fund in the online report and see whether the balance between economically sensitive and defensive sectors is as they expect. Healthcare, utilities, communications and consumer staples are defensive sectors; industrials, construction, materials and financials tend to be cyclical.

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In the funds I co-manage, we have moved about 20 per cent of assets into more defensive investments over the past two years, while leaving a core of the portfolio in growth companies that we consider still offer reasonable value. It means our largest holdings are now dominated by healthcare companies such as Merck, Humana and Thermo Fisher.

Three years ago the largest holdings included Alphabet (Google), Amazon and economically sensitive companies such as Citigroup. Same funds, but a rather lower risk profile, we believe.

Lastly, the most obvious change to look for is in performance. Most of us review our investment holdings after a period of poor performance. Active managers certainly need to show that their funds perform better than the equivalent passive index fund over time and after all costs. This counts for most sustainable funds, too. We believe we can outperform the global index without having to invest in oil, tobacco, weapons manufacturing and gambling. (Tighten the constraints much beyond that, though, and we think you make it harder for the manager to outperform.)

Every active manager will have periods of underperforming the index as well as (hopefully) outperformance. It is how this adds up over a reasonable period of time that should be the main question. How a manager responds to a period of underperformance is important. Sometimes they are pressured (or feel under pressure) to make dramatic changes in fund style or composition. But if market conditions have been against a style for a while, it is seldom wise then to change style.

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In conclusion, there is merit in having a buy-and-don’t-meddle approach to wealth management, but you do need to review things at least once a year. Follow the practice of good investment managers when you buy a fund or trust — make a note of why you chose it. It will help when you come to review it to check whether it still meets your needs — or, indeed, whether your needs have changed.

Some philosophers might argue that while Trigger no longer had the same broom after 20 years, but it was still fully functional. It did its job. Change can be necessary and good. Have the funds in your portfolio changed, and are they still fit for purpose?

Simon Edelsten is the manager of the Artemis Global Select Fund and the Mid Wynd Investment Trust. The views expressed are personal.



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