13 Questions for Redwheel's Nick Clay

In this series, we ask leading fund managers about everything from their investment strategy, to role models, their views on crypto, and what they’d never invest in

Marina Gerner 30 March, 2022 | 5:31AM
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In this series of short profiles, we ask leading fund managers to defend their investment strategies, reveal their views on cryptocurrency, and tell us what they'd never buy.

This time our interviewee is Nick Clay, portfolio manager of the Morningstar 4-globe rated Redwheel Global Equity Income strategy.

Which Sector Shows The Biggest Promise in 2022?

We believe the retail sector has one of the strongest backdrops it has seen for a long time. The data indicates we are already late in this economic cycle, despite interest rates having only just started to meaningfully rise. Therefore, the sectors one would usually look to at the start of rates rising (banks, mining, industrials) do not look attractive. Instead, it's all about the consumer who had a good pandemic (strange though that sounds) and came through it in better financial health than before! This is a first. Normally recessions hurt the consumer.

What's The Biggest Economic Risk Today?

Many would say inflation, but we would say policy mistakes: raising interest rates too high, or too soon. The effect on inflation from the Russian Ukraine war is only increasing that risk. As we feel we are already late in this cycle – and given that debt has rocketed up for both corporates and governments – the biggest risk we see is rising rates into a slowing economy being very difficult for markets and corporates alike.

Describe Your Investment Strategy

Quality at a reasonable yield. Within the Redwheel Global Equity Income strategy, our buy and sell disciplines ensure we look to compound a higher income than the market in quality companies we can only buy when they are cheap or undergoing some sort of controversy. We are also forced to sell any company that does very well and yields less than the market, so our clients get a truly differentiated way of generating a decent total return over time instead of the commonly-loved growth approach.

Which Investor Do You Admire?

There are many, but Howard Marks always seems to teach me something I had not thought about, or forgotten about. His humility is his strongest lesson. 

Name Your Favourite "Forever Stock"

In a perfect world they would all be forever, growing dividends fast enough to allow re-rating and never going wrong! In reality, nothing is forever as it either gets too expensive and our sell discipline forces us to recycle the capital (or it goes wrong, and our sell discipline forces us to face up to our mistake). Ultimately even the best company in the world at too high a valuation becomes the riskiest company. Nothing is forever.

What Would You Never Invest In? 

Anything that yields less than the market. Investing is probabilistic in nature, and the statistics of picking the next winner are very difficult to repeatedly get right. It is too difficult for me certainly. We are happy to leave such investments on the table for others. 

Growth or Value?

Neither – we believe quality at a reasonable value will ultimately see our clients through the rotations from growth to value to growth to value and so on. We certainly don’t believe we can trade those rotations consistently for our clients.

House or Pension?

The house is worth more than the pension but that is probably more to do with luck of timing. Ultimately pension should be better for most, as it can harness the power of compounding over a long time. 

Crypto: Brilliant or Bad?

I know so little and understand even less about it. To me the value and huge disruptor is blockchain rather than the currencies. If currency ends up crypto, then surely governments will control it. Blockchain, however, has the potential to dramatically change many businesses.

What Can be Done to Increase Diversity in Fund Management?

Cognitive diversity is key to good problem solving. Introducing investment into education from as young an age as possible is the best way to ultimately attract all types of minds to the industry. I believe we should interact with the most challenged of schools to open up opportunities to young people who are most likely unaware of such paths.

Have You Ever Engaged With a Company and Been Particularly Proud (or Disappointed) in the Outcome?

I wouldn’t dare suggest our engagement alone as a team has the ability to change anything! However, combined with other groups (internally and externally), the collaboration against Shell to push their transition program harder and to greater accountability was, I feel, a good outcome. The oil majors will be needed as part of the solution on climate change. Encouraging them to do more will be an important aspect of engagement.

What's The Best Bit of Advice You’ve Ever Been Given?

Never forget the role luck plays in an outcome. It reminds one to put process over outcome and to be careful to look at the real lessons to be learnt.

What Would You Be if You Weren’t a Fund Manager?

An artist: I would love to be involved in movie set design – they always blow me away.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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About Author

Marina Gerner  is a freelance journalist