"A core principle that remains constant between football teams and portfolio management is the ability to evolve, while applying consistent philosophies and integrity," says Aurum Funds' Iain North.
As we enter the final games of this year's enthralling World Cup, it may be fun to look upon your portfolio and compare it to some of the national teams – and their respective performance in this year's tournament. One clear analogy may be made to the all-important defenders within each team, with the notable disappointments coming from England and Spain – bowing out early in the tournament due to weakness at the back. Could they be compared to the traditionally defensive allocations within one's portfolio? Have your fixed income and other 'safe' allocations become a little too complacent, buoyed by a multi-year tail wind of falling interest rates and rising bond prices? Could your historically 'strong defence' be susceptible to a nasty bite via spiking interest rates? What are the lessons learned from the Spanish – relying on the same team and for history to repeat itself despite a changing environment, in contrast to the fresh, energetic and nimble Colombians?
The attackers of the tournament have provided much entertainment – starting with Robin van Persie's stunning first goal against a lethargic, sideways-moving Spain. Could they be analogous to our equity markets – who continue to reach all-time highs and grab the headlines? And could the increasing domestic support of the USA team be likened to the renaissance of its west coast tech industry – leading the way in creativity and post-IPO price performance. Does your portfolio work together as a whole – rarely seen from Belgium so far despite the appearance of many individual stars?
Whatever the analogy, a core principle that remains constant between football teams and portfolio management is the ability to evolve, while applying consistent philosophies and integrity. There are thousands of pension portfolios across the globe, most of which are managed by responsible and educated individuals and boards. Looking at history, it is clear that there is no 'one size fits all' for pensions, no correct portfolio allocation determined by aged portfolio theory upon an efficient frontier. However, as much as footballers have evolved over the years with issues from increasing demands on fitness to a lighter, faster football: so must trustees and portfolio managers. The growth in the breadth of financial products available to portfolio managers over the past 20 years is astounding – even retail investors today can gain (long or short) access to secular changes in industries, implied volatility, high yield bond ETFs, and emerging markets, just to name a few. Traditional approaches to portfolio management should evolve with the financial markets in order to enhance their durability and strength, as we have seen with the strongest teams throughout this year's great tournament.
Written by Iain North, senior analyst, Aurum Funds
