5 January 2022

Good process drives good outcomes in the long run

James Godrich provides insight into the performance of the CSI funds in Q4 2021, including his holdings in PayPal and Sage.

by James Godrich

Fund Manager


In a quarter that saw the return of at least some Covid restrictions across much of the world, global equity markets experienced a polarised performance where the North American index posted a double digit return whilst many Asian and Emerging Market indices delivered a negative performance. In addition, the dollar performed exceptionally well and so as a UK investor it paid (even more so than in recent years) in the fourth quarter of 2021 to be invested in America.

Commentators will provide myriad reasons for this performance that might include Federal Reserve communications that highlighted their intention to act soon to stave off more serious long-term inflationary concerns; a flight to safety by investors in the face of the Omicron threat; and heightened political risk over the quarter in some Emerging and Asian economies such as Turkey, Russia and China.

Against this backdrop, disappointing performance in the fourth quarter in the CSI funds was driven by a small underweight position to the North American market and to poor single stock performances, such as PayPal discussed in our market commentary last month. These were partially offset by continued strong performance from long-term holdings in both the UK and Europe such as Sage, Croda and Nestle.

We believe that examples such as PayPal give us an opportunity to learn and we are increasingly aware of managing the balance between ‘letting our winners run’ and allowing too large a weight to build in businesses that we believe are temporarily over-valued. But we believe that the extreme geographic performance seen in Q4 also highlights the significant amount of uncertainty, and sometimes even luck in investing. This is why we adopt the strategy in CSI to merely ‘tilt’ our asset allocation bets and to focus our efforts on analysing individual stocks, assets and strategies rather than what we deem to be much less predictable macroeconomic variables.

Any quarter of poor performance is disappointing but we will continue to focus on the longer-term performance that the funds deliver. We remind ourselves at this point of a quote from our Christmas read by Michael J. Mauboussin on ‘untangling skill and luck in business, sports and investing’ that ‘when a measure of luck is involved, a good process will have a good outcome, but only over time’. We must not forget this quote and the role of luck after an exceptionally strong quarter of performance.

 

James Godrich, Fund Manager

James is the manager of the Coleman Street Investment Service


The value of securities and their income can fall as well as rise. Past performance should not be seen as an indication of future results. All views expressed are those of the author and should not be considered a recommendation or solicitation to buy or sell any products or securities.

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