I can’t say it was a surprise to hear this week that James Clunie will be stepping down from running the Jupiter Absolute Return fund. The fund has lagged for a long time, is down 18% this year and has posted annualised losses of 8% over three years. Assets have dwindled to around £165 million as investors have given up and moved their money elsewhere.
The situation raises a couple of important questions for me. Firstly, the obvious one of what do you do when a manager leaves a fund? But our analyst Michael DeFauw explains that here. Another burning question I have though, is how long should investors stick with their convictions when things are going wrong?
James Clunie has been most notable in recent years for his bold bets against tech darlings such as Tesla and Netflix. In a year when Tesla’s share price has soared more than 500%, he has remained controversially convinced that none of it is based on fundamentals and it will all come crashing down.
We need more people like Clunie in the investment world. People who aren’t afraid to bet against the crowd and don’t simply roll with the consensus. Otherwise we might as well just scrap all the active funds and whack our money in a tracker. But how long do you hang in there when the stock market is insisting you're wrong? Clunie held a short position in Tesla, effectively a bet against the stock, which would mean he profits if the share price falls. Great if you’re proved right, but these can be incredibly expensive positions to run while a stock is soaring.
The investment world is like a game of chicken sometimes, with two sides of one investment bet each waiting for the other to capitulate. We saw this on a grand scale during the dotcom boom when a raft of fund managers who'd previously sworn off investing in unprofitable, unsustainable businesses gave in and followed the crowd. We all know how that story ended.
Dare I mention his name, but it was Neil Woodford who was one of the few fund managers who refused to yield. He spoke out after the bubble burst, after he had been vindicated, of just how close he had come to losing his job during that bubble.
In the end then, it comes down to how long you can afford to wait for things to turn and for your hunch to be proved correct. James Clunie ran out of time. And while investors in his fund deserve better performance than they have endured these past few years, I still think we need more managers like this.
Check Before You Check In
It’s no surprise that Airbnb’s share price doubled on the day of its stock market debut. The stock has all the ingredients for such a launch:
Well-known brand? Check
Digital disruptor? Check
Loyal fanbase? Check
But my colleague Ruth Saldana raised some interesting points this week about the ESG credentials of this young upstart. The governance structure of the IPO, for example, means its three founders will retain a controlling share of the business. Meanwhile, concerns have been raised for years about the effect the firm has on local communities, pushing up property prices and rental costs for would-be residents.
Let’s think back over this year where we’ve seen Tesla make workers go into factories during the height of a pandemic, the Boohoo.com modern slavery furore, and the lingering concerns around Facebook and privacy. Investors could be forgiven for assuming that innovative, young, digital companies are going to be leaders on matters of ESG – increasingly we are seeing that is an assumption that should not be made.
Chance of a Lifetime
We heard this week from one reader who is investing his money through a Lifetime Isa in a bid to get a foot on the property ladder. The desire to buy a home is, I think, one of the most common prompts that gets people thinking about investing. The thought process goes something like this:
I want to buy a house/flat.
Good lord, properties are expensive.
Ok I need to double/triple/quadruple my money – FAST. But how?
I know, I’ll invest!
And that makes a lot of sense on the surface. Especially when you have the government offering a tasty 25% bonus on a Lifetime Isa when you use the money to buy your first home.
But the problem is that one of the first rules of investing, the one that is tattooed on all fund managers’ hearts (and etched in stone in all investment marketing material) is that investing is for the long-term. You should not be doing it if you’re going to need that money any time soon.
Need a reason why? How about March 2020? Imagine if you’d been invested in the stock market and on the brink of using that money to put down your first house deposit. Overnight your carefully squirrelled savings have halved in value. Sure, they’ll recover over the long-term (probably) but your property purchase will almost definitely fall through while you’re waiting.
Other than a huge correction in house prices – which would cause uproar among homeowners, myself included – I’m not sure what the answer is. More education? Probably. Fewer products that serve to further inflate the housing market? Definitely.
