Adam Norris, investment manager at Columbia Threadneedle’s multi-manager team, talks to Piyasi Mitra and outlines some of the key differentiators in the firm’s fund selection and rating process as well as the challenges of current market conditions
The departure of multi-manager head Rob Burdett from Columbia Threadneedle in February led to the integration of the team into the firm’s Emea asset allocation team, now under the leadership of Paul Niven. The multi-asset team is currently focused on asset allocation across fund ranges, primarily utilising internal security selection.
Adam Norris, an investment manager with Columbia Threadneedle’s multi-manager team, plays a key role in optimising portfolio construction as part of this transition.
With the team managing close to £1.2 billion across various fund ranges, Norris says that, while Columbia Threadneedle invests significantly with third-party managers and investment trusts, the focus has shifted towards refining portfolio construction rather than mere asset allocation. This transition has become more pronounced over the past six months, as the multi-manager team adjusts to the new structure and focuses on creating optimal portfolios tailored to specific risk-return outcomes.
Some of the largest portfolios of the firm include open-ended equities and bonds, along with investment trusts which are closed-ended offerings like infrastructure and property, as well as growth and boutique funds focused on open-ended equities. “My main role is to assess portfolio construction and ensure the right asset mix, while asset allocation is handled by the broader multi-asset group,” says Norris.
Secret sauce
A critical aspect of Columbia Threadneedle’s fund selection process, as revealed by its Multi-Manager Q2 2024 Fund Watch Survey, is the recognition that consistently outperforming funds are rare. The survey underscores the importance of blending different fund types and managers to achieve smooth, long-term returns.
Norris emphasises that the firm’s selection process goes beyond quantitative analysis, delving into qualitative assessments to understand how investment dynamics within a group have evolved.
“Prioritising qualitative analysis over just looking at a manager’s quantitative track record involves evaluating factors like the alignment of interest between the manager and the product, the flexibility of the manager to operate without benchmark constraints, and the growth trajectory of the fund management group,” adds Norris.
The firm also prefers managers who aren’t tied to benchmarks, giving them the flexibility to invest wherever they see opportunities — whether in small-cap, mid-cap, large-cap, or mega-cap stocks. It can access founder fee classes early on, which helps reduce costs for our clients and improves performance. However, once a manager grows beyond a certain point, those lower fees might no longer be available, points out Norris.
“We prefer to invest with groups and funds early to evaluate the alignment of interest. If we can help seed a fund and get it off the ground, usually that’s when the manager is most incentivised to perform, rather than managing it when they’ve got a lot of assets,” he adds.
“Prioritising qualitative analysis over just looking at a manager’s quantitative track record involves evaluating factors like the alignment of interest between the manager and the product, the flexibility of the manager to operate without benchmark constraints, and the growth trajectory of the fund management group.”
Norris also outlines a three-tiered rating system for ESG fund managers within Columbia Threadneedle’s investable universe. “We rate ESG fund managers in three tiers within our investable universe.
“Gold is awarded to funds focused on societal impact, typically impact funds and sustainable development trusts. Silver goes to managers where ESG is ingrained in their process, with some exclusions but an overall commitment to ESG principles. Bronze is for those who view ESG primarily as a risk mitigation tool, addressing governance issues without necessarily excluding sectors like energy or mining.”
Defensive vs aggressive
In discussing market trends, Norris notes the current overweight position in equities, which leads to a more aggressive portfolio stance.
The UK market, quite modestly rated, is already close to its lows of a high-10-year average. The US, on the other hand, is pushing the upper end of its 10-year average for valuation. While some of that may be justified by certain cohorts of stocks, some of the stocks look slightly “priced to perfection”.
“Currently, we are slightly less optimistic on some of the mega caps in the US and more optimistic in markets like the UK,” he adds.
The survey also highlights that the growth in Indian equities is becoming a lasting trend, benefiting from geopolitical dynamics and a robust demographic profile. While Japan continues to score highly and Asia Pacific ex-Japan equities show signs of improvement, the rise in bond yields and lack of consistent fixed income funds performing well speak loudly to the gyrations of the market’s reading of the monetary policy backdrop and central banks’ actions.
While the majority of active managers are struggling against global indices, especially in the North American sector as mega-cap technology stocks dominate overall returns, this reasoning does not hold up when comparing fund returns within their respective sectors outside of the US.
“Currently, we are slightly less optimistic on some of the mega caps in the US and more optimistic in markets like the UK.”
“Looking ahead and despite challenges in fixed income, we remain optimistic about equity markets, especially in underappreciated areas such as UK equities, small caps and alternative investment trusts,” says Norris.
When discussing fund selection, could macroeconomic drivers be far behind? The UK-European economic picture seems to be troughing slightly amid supportive economic and monetary policy backdrops, Norris points out, and European equities are in a rosy spot now. He also touches upon the ongoing regulatory challenges, such as the UK investment trust market’s cost disclosure dispute, which could create headwinds for the sector.
Norris, a self-confessed “political nerd”, shares: “The real elephant in the room is the potential impact of the incoming Republican administration on US economic performance, world trade, foreign policies and subsequently, global equities.”
