Introduction - Angles & Perspectives Q1 2024

Introduction - Angles & Perspectives Q1 2024

“If you can’t measure it, you can’t manage it” is a popular and well-known adage in the business world, and one that is sometimes attributed to W. Edwards Deming (among others). Ironically, what most people read into this is not what he intended to say.

The full quote from his book The New Economics reads: “It is wrong to suppose that if you can’t measure it, you can’t manage it – a costly myth.” This goes to show that while some may believe measurement is the answer to everything, for others it is not so clear cut.

The Reliance on Data

We live in a time where businesses have fallen in love with all things measurable, and arguably, are drowning in data and statistics of all types. The world of investments is no different.

At the portfolio level, company statements and share price data is sliced and diced, while at the fund level performance statistics, fund attributions and a whole assortment of ratios (Sortino, Sharpe and Information, to name a few) are used to dissect the fund universe. Sort them, measure them, compare them and stack them up.

The Danger of Unquestioning Reliance on Data

Little wonder then that we become reliant on data as a crutch in our decision-making. What do the numbers say? End of story. But whether we are looking at the riskiness of an asset (like energy stocks) or a fund, there is some danger in an unquestioning reliance on these face-value analyses alone.

Often, context can be key, and delving deeper, interrogating the data differently, can yield different and new insights.

We believe it is our independent thinking, coupled with a willingness to look beyond the first (and more obvious!) line of analysis, that sets our proven 3M investment process apart and helps us to build portfolios with a track record of delivering long-term alpha for our clients.

Accessing Overlooked Opportunities

As with the quote above, while the numbers may lead you in one direction initially, different conclusions often emerge as we begin to delve deeper into the detail. And, as many give up on the additional work this rigour entails, we find that we are often able to access opportunities many of our competitors overlook at attractive valuations. 

Articles in this Edition

In this edition, we aim to share how this works in practice.

1. Investigating the Energy Sector's Reputation

In the first article, Head of Research Kevin Cousins investigates the reputation of the energy sector as being a ‘risky’ investment. However, by analysing the behaviour of the sector in more detail, Kevin shows that there are alternative views of risk – beyond quantitative risk measures – that can help to prevent permanent capital loss on the one hand, and achieve required returns on the other.

2. Diversification and Fund Risk

Turning to risk at the fund level, Chief Investment Officer John Gilchrist shows that while diversification is often referred to as the ‘only free lunch’ in investing, an over-reliance on stand-alone fund risk measures can cause the important benefits that a fund manager can add through diversification to be overlooked – and for funds to appear riskier than they are in reality!

3. Opportunities Outside Popular Areas

In the final article, Deputy Chief Investment Officer Greg Hopkins and Fund Manager Philipp Wörz consider the unprecedented levels of concentration we have seen in pockets of the market, and explain why the opportunities we are finding in global markets are typically outside the currently popular areas.

We trust that you will find these articles insightful, and their guidance valuable in these turbulent times.