Freddie Lait, manager of the Latitude Horizon Fund, explains his current take on markets, how investors should position their portfolios and why he loves Tesco shares.
Freddie Lait, chief investment officer at Latitude Investment Management, discusses the markets in Bloomberg.
Lloyds your best bet in a struggling UK banking market, analyst says
Freddie Lait, chief investment officer at Latitude Investment Management, discusses Lloyds Bank’s earnings.
Tesla will likely get bought by a tech company, analyst says
Freddie Lait, chief investment officer at Latitude Investment Management, said it was “possible” Apple or another tech company could buy Tesla.
Freddie Lait, founder and chief investment officer at Latitude Investment Management, discusses the outlook for U.S. bank stocks ahead of Bank of America Corp. and Goldman Sachs Group Inc.'s fourth-quarter earnings reports today.
Lait, who owns stocks in both banks, speaks on "Bloomberg Markets: European Open."
David Brenchley6 December, 2018 | 2:48PM
Gold could rebound in 2019, according to Adrian Ash at BullionVault. But there's a fellow precious metal that could be the most contrarian investment around at the moment
On the surface, gold has had a dreadful year. Looking at the price of the precious metal in US dollar terms – the currency it is usually denominated in – it is down 5% year-to-date to trade at $1,236 currently.
However, the reason for that weakness has very much been strength in the US dollar and continued rising interest rates in the United States. When you look at the gold price in both sterling and euro terms, it is flat on the year.
Rising equity prices haven’t helped, either, of course. Managed money continues to be as short gold as it has ever been. If equities are strong and you’re trying to run money on a quarterly returns basis for clients, you don’t really need gold, says Adrian Ash, at Bullionvault.
But there’s a strong case to be made for allocating part of an investors’ portfolio to gold looking ahead into 2019.
While some expect the Federal Reserve to keep ticking rates higher, many now see two rate rises in 2019 before a pause. With US growth expected to slow through the course of the year, the currency could reverse course, too.
Gold as a Hedge
Freddie Lait, manager of the Latitude Horizon fund, agrees. His fund has gone from having 5% of the portfolio in gold in July to 10% today. For sterling investors, gold has had "an incredible negative correlation" with global equity markets for the past year or so, he notes.
"I'm not a gold bug, but from time to time it makes a huge amount of sense," he says. "Right now, it's probably the best hedge we can find."
And for UK investors, Ash says the risks are so heightened, investors should be looking for some protection. “The risks are pretty obvious and the danger is everyone agrees the risks are obvious and discounts it,” he says.
Aside from the obvious risk of a hard Brexit, Jeremy Corbyn, seemingly, waits in the wings for the Conservative Government to fall – whether that be before or after the current date of the next general election in 2022.
Currently, adds Ash, markets are neither pricing in a bad Brexit nor the potential for a Corbyn Government, whether that be before, during, or after said bad Brexit.
“If you think you can go to bed on 28th March having taken zero insurance, then great. But I think there’s a serious risk of that being very complacent, almost as complacent as the markets were going into June 23, 2016.
“Obviously there’s a risk to gold if it all goes tickety-boo; that was also the risk going into the referendum. Gold and sterling had been a great trade in the first six months of 2016 and there was definite downside if the referendum went with remain.”
He notes that BullionVault has seen a recent uptick in allocations to gold by family offices and high-net-worth investors looking for a hedge. “Larger investors are anxious.”
And, despite global money managers shunning gold, Ash says we’ve not seen large outflows from those who have allocations to it. Those investors with long positions are comfortable with it.
“This year has put to bed my fears that I’ve had over the years that retail investors might turn tail out of gold as well on a price rise,” he explains.
The fear was that a rise to $1,400 would see retail investors selling out. That’s because many would have bought around that price in 2011-13 and have seen negative returns since.
“You’ve got people who got in at that level and have been under water for those six or seven years since. You could say that if you’ve bought gold in 2011/2012 it’s become a forever investment because it’s done so badly.
“But people have seen it go up and down in opposition to other things, so it’s kind of been doing its job. This year it’s done its job; if anything it’s done very well.”
What About Silver?
Silver is currently trading at around three-year lows, having fallen 15% in 2018. This means the gold-silver ratio, at around 85 times, is the highest it has been in 25 years. It reached 100 times in the early 1990s, but that was a historical anomaly, says Ash.
But Ash does not think that necessarily means silver is cheap. “I’m agnostic on the gold-silver ratio. Just because it’s at 85, doesn’t mean it has to go lower. And it might go lower because gold falls faster than silver; it doesn’t mean silver’s going to go up.”
Unlike gold, silver is primarily an industrial metal and, at the moment, Ash thinks that an industrial story that would re-rate the silver price is lacking. Platinum has the same problem, “with bells on”. That’s because platinum’s biggest use is in diesel cars.
“Now, there’s lots of good reasons to think that the diesel story is way overdone and there’s very good reasons to think that the battery electric vehicle story is way overdone,” says Ash. Still, demand for diesel cars is collapsing right now.
That story has served to boost palladium, which earlier this week became the most valuable precious metal, rising to a higher price than gold for the first time. That’s because palladium is used in catalytic converters for petrol cars, which are likely to mop up demand from those deserting diesel.
With palladium now trading at a huge $350 premium to the platinum price, Ash reckons the latter could now be very much undervalued. That said, he also thought that 12 months and two years ago.
“It’s easy to say here’s a great story about platinum – it’s horribly undervalued and the long-term outlook is much better than people think – but it could be quite a long time yet.”
While 10 to 20 years is a long time to hold a position in a metal, “if you’re really looking for a story about a contrarian opportunity, platinum would be it”.
Nervous about Apple’s drive for ‘continuous innovation,’ CIO says
Freddie Lait, chief investment officer at Latitude Investment Management, discusses the smartphone and telecommunications sectors.
By David Brenchley - Morningstar
20 November, 2018
Black Friday may be slated for the last working day of this week, but it seems to get longer and earlier each year, as retailers desperately battle for consumers’ business. But for some stock pickers, the time to pick up bargains came even earlier than November.
After an indifferent start to the year where the US was the only market to deliver meaningful gains, global stock markets were hit for six once the notoriously tricky to navigate October begun.
The Morningstar US Market returned 9.1% in US dollar terms in the first nine months of 2018, but has given up almost all of those gains in the quarter to 19 November, losing -8.14%.
While Morningstar Emerging Markets in USD terms have performed better in Q4, with a loss of 5%, than in the first three quarters (-10%), all other major markets have struggled recently. Morningstar UK is down 7% so far, compared with -2.06% January to the end of September, and Europe down 7.3%, compared with -1.6% in the first nine months of the year.
On Europe in general – but these comments apply across most regions, too – Chris Hiorns, manager of the EdenTree European Amity fund, says the sell-off was caused by a combination of weak economic data from Europe and China and escalating geopolitical concerns surrounding Trump’s trade wars, Italy’s budget stand-off with the EU and ongoing Brexit negotiations.
As a result, growth sectors sold off sharply. Within this universe, Hiorns thinks the IT sell-off, particularly in semi-conductors, was justified given they were trading on very high multiples.
“However, the sell-off in industrials and consumer discretionary sectors was too indiscriminate, pricing in a severe economic slowdown on many value companies which were already trading on low multiples.”
Below, we highlight some companies that professional investors believe fell to attractive valuations during the sell-off and have either initiated a new position in or topped up their exposure.
While many managers just topped up holdings, for others the correction was a chance to snap up shares in companies they had been watching for a long time. For Freddie Lait, for example, it gave him an opportunity to make Starbucks the first new position in his Latitude Horizon fund in two years.
After a big run up back in 2015, when it appreciated almost 50%, the coffee chain’s share price had gone sideways for the past two-and-a-half years. That was until Q4 numbers disappointed in June and the stock fell 15%.
By early October, it had slightly recovered to $58 – still a four-month high – before falling another 5%. That’s when Lait took the plunge and bought.
For a stock to become better value, the share price does not have to fall dramatically, explains Lait. In the case of Starbucks, “the operating performance was improving dramatically, and the stock was falling slightly. That’s as good as a stock falling a lot and the business staying the same”.
In fact, the manager says he prefers the former, “because it gives you momentum when you buy into it”. In Q4 to date, Starbucks is up 20% to trade at a record high $67.
Facebook has been a divisive stock for fund managers, with many selling out in the past year but others continuing to be positive on the prospects of growth.
Simon Edelsten, manager of the Mid Wynd International Investment Trust (MWY), was in the former camp. He sold the stock in December 2017 at around $182 and watched it fall to as low as $152 by March.
After that, it climbed back to an all-time high of $217 before plunging 40% to $130 today. And Edelsten has taken advantage and added Facebook back to his portfolio.
“We think the company has further to go in making its site more customer friendly, but while Facebook matures, Instagram and WhatsApp continue to grow,” he explains.
Smurfit Kappa (SKG)
Hiorns has been busy topping up his exposure to companies servicing the automotive sector, but looking throughout the value chain rather than at the obvious – chip makers and car manufacturers.
“There is a current soft patch in the European economy, mostly driven by the short-term impact of new emissions standards on the automotive industry, which should give way to a recovery in economic growth, business and consumer confidence,” he explains.
One UK company he likes on this theme is FTSE 100 firm Smurfit Kappa, which is a paper packaging manufacturer. Since the start of September, shares are down a third to an 18-month low of £21.31. They now trade on a forward price/earnings multiple of 9.4 times and yield 3.6%.
“Smurfit Kappa is well placed to benefit from the rise in e-commerce driving parcel volumes,” says Hiorns.
Diversified Oil & Gas (DGOC)
Many of the larger names were predictably vulnerable in the sell-off due to rising US Treasury yields prompting investors to reassess their risk-free rate assumptions and demand more for riskier assets.
But, as Jon Hudson, co-manager of the Premier UK Growth fund, notes, “babies always get thrown out with the bathwater in a stock market correction”, meaning opportunities crop up in parts of the market they maybe shouldn’t.
Hudson’s fund bought into AIM-listed Diversified Oil & Gas after the stock fell 15% from 124.5p in early October to what turned out to be a bottom midway through the month at 105.5p. They have bounced since to trade today at 111p, but still offer a compelling forward yield of 9%.
The firm floated on the junior market in February 2017 with an offer price of 65p. DGOC is predominantly a conventional gas producer in America’s Appalachian basin with operations in Pennsylvania, Ohio and West Virginia.
Hudson says it’s grown rapidly by acquiring assets from shale operators keen to focus on fracking. “US gas prices are on the rise due to storage levels being at a 15-year low as we enter the key winter heating season,” he adds.
French tyre manufacturer Michelin, meanwhile, has been under pressure all year. After shares hit an all-time high of €130 in early January, they had sunk a third to as low as €85 by late October.
At around this point, the stock was trading on a forward PE of 9.1 times and offering a dividend yield of over 4%.
Continuing his theme, Hiorns says the firm “provides a relatively defensive exposure to the automotive sector, with the majority of sales coming from replacement tyres”.
Schneider Electric (SU)
Schneider makes industrial machinery and produces power distribution and automation systems for a number of industries. One of those is the automotive sector, where it provides electric car charging points, starter motors and other products.
It’s another that hit an all-time high share price earlier this year – €78 in late May – but has been under pressure since. The share price slipped a quarter to €58 a month ago, providing an entry point at 14.3 times forward earnings with a 3.6% yield.
“Schneider Electric is well positioned to benefit from increased spending on the green grid as we move more towards renewable generation and electric vehicles,” adds Hiorns.
Freddie Lait, chief investment officer at Latitude Investment Management, explains why he prefers the U.S. banking sector to Europe’s.
By Joshua Thurston - Citywire
Although ‘past performance is not a guide to future returns’ is the familiar refrain trotted out, we continue to deify top-performing managers and many are willing to talk about the drop off in a fund’s track record being solely down to their investment style being out of favour.
However, what very few talk about, but perhaps should, is whether the emotional state of a manager following a period of great performance is linked to their downturn.
‘It is one of the trade secrets that we never talk about, the emotional rollercoaster that is the job,’ said Alan Custis, the Citywire A-rated Lazard Asset Management managing director and portfolio manager.
The first question worth asking is whether a fund manager’s overconfidence really can have an impact on returns.
‘Success does breed a degree of confidence. Time and again with high profile managers, if your stock selection has not been working, you intuitively become more risk averse; it is very difficult to stop yourself going that way,’ Custis said.
‘If you have had a good period of performance, you are more inclined to take more risk in the portfolio and those are effectively the seeds of the next downturn in your performance.’
Accept your limitations
In their discussion paper ‘Overconfidence in Investment Decisions: An Experimental Approach’, Dennis Dittrich, Werner Guth and Boris Maciejovsky, from the Max Planck Institute for Research into Economic Systems Strategic Interaction Group, stated that overconfident managers are often found to overestimate the precision of their knowledge. They are more confident of their predictions in fields in which they have self-declared expertise.
Latitude Investment Management’s Freddie Lait certainly thinks overconfidence can adversely affect managers.
‘What I often say is: overconfidence is quicksand for reason in the financial industry,’ he said.
‘When you become that overconfident and you have had some success, you stop doing the things that you knew were rational when you were struggling or when things were a little bit harder or more balanced.’
This is not to say he sees confidence in itself as necessarily a bad thing, however.
‘Confidence is very good, but overconfidence can be very bad, so what we say is we are highly confident in the process, but that does not mean that you should be overconfident in each individual investment.’
Trust the process
According to Lait, the way to avoid falling into the trap of overconfidence is by sticking to your investment process no matter what.
‘Suppose you and I have a £10 bet on the role of a die: if you roll one, two, three or four you win and if I roll a five or six I win, you should take that bet. But, on a single dice roll, you cannot be confident, because there is a third of a chance you will lose all of your money.
‘However, over 100 rolls you can be exceptionally confident and you could almost guarantee that you were going to win. That is the way we think about process.’
Dittrich, Guth and Maciejovsky’s findings seem to support Lait’s view on the importance of process. They demonstrated that the overconfidence of investment managers also increases with the complexity of a task. Therefore, it follows suit that sticking to a singular process can help fund managers rein this in.
Lait said: ‘We have a process that has all of the building blocks that should give us a better chance of success or should give us four out of six on that dice roll. That is how you conquer overconfidence, so you are detached from each individual investment.’
The right team
Beyond relying on a process, Waverton fund manager Will Hanbury says that surrounding a manager with the right team can really help.
‘We do suffer from confirmation bias; we tend to look for arguments that support our views,’ Hanbury explained.
‘People have a tendency to love or hate things and when you are in investing, this can be very damaging, especially with people holding stocks that have done very well.’
Hanbury is backed up by behavioural finance research which, as Arman Eshraghi and Richard Taffler explain in their ‘Fund manager overconfidence and investment performance: evidence from mutual funds’ study, assumes investors are often subject to behavioural biases that can negatively affect their financial decisions.
Eshraghi and Taffler go so far as to suggest ‘the investment industry as a whole, and fund trustees in particular, can also benefit from introducing some type of psychological screening in the fund manager selection process’.
They point out that the hiring of fund managers is traditionally heavily dependent on the manager’s past performance record, when more detailed profiling of individual’s thought processes and behaviours in different scenarios would be more beneficial.
‘We argue that by adding certain psychological attributes to the list of critical factors in hiring fund managers, investment companies can raise their chances of recruiting more “successful” managers,’ the pair wrote.
‘Psychometric tests attempt to measure the abilities, attributes, personality traits and various skills of the candidates under consideration for particular vacancies.’
Challenging established views
Aside from this, one way Hanbury highlighted to mitigate excessive self-confidence in fund managers is by having a team of analysts who can genuinely challenge their established views.
Custis agrees, pointing out that having an analyst’s input is clearly a counterweight, noting a committee of one is not as good as a committee made up of a number of people when it comes to making a decision.
Although the danger of becoming overconfident is present, Custis does see the job itself as self-regulating to an extent.
‘What you have is a job in which your periods of complacency are comparatively short, because as night follows day, you know what you have is going to stop working at some point.’
He said that even during a patch of good performance, managers can be certain that it will not last forever, as investing in the markets is like investing in a living organism and every-day things change.
‘So you are trying to constantly work out what it is that is going to change and how your portfolio will be impacted as a result of whatever changes keeps us/me awake at night. That’s the job,’ he added.
With his Latitude Horizon fund outperforming the market, manager Freddie Lait explains why he's positioned for investors who understand the value of equities in their portfolio.
Freddie Lait, manager of the Latitude Horizon fund, explains what he'll do next with stakes in Tesco, Royal Mail and Imperial Brands. There's also some great advice for investors.
Witan (WTAN), the global ‘multi-manager’ investment trust, has begun to back the next generation of fund managers with a new mandate to boutique Latitude Investment Management.
The investment represents the first in a new category under which Witan chief executive Andrew Bell and investment director James Hart can invest up to 2.5% of their £1.9 billion portfolio in up-and-coming fund managers.
Bell and Hart are allocating around 0.7% of Witan, or between £10 million and £15 million, to Latitude, which was founded by global stock picker Freddie Lait (pictured) in 2016. Lait who formerly managed the Odey Atlas fund, received backing from Odey Asset Management to launch the business and took the fund with him, which has since been renamed the Latitude Horizon fund.
The fund targets lower volatility and takes a high conviction approach. It currently allocates around 45% to equities, with the remainder in other asset classes. Latitude Horizon has returned 4.7% over the 12 months to the end of March, which compares to 1.7% by the average fund in the flexible sector.
The Witan mandate will be based on the global equity portion of the Latitude Horizon fund but won’t be an exact mirror, Hart said.
Hart added that the allocation does not reflect a desire to increase global equity exposure, but rather is a way to get exposure to a fund manager at an exciting stage in their career.
'One of the reasons we started thinking about this is because there are a number of managers – around London, the UK and the rest of the world – who are at a similar stage in their development but are quite far below the radar. It is not easy to find really talented people who have not hit the headlines,' Hart (pictured) explained.
The new position will sit in Witan’s ‘direct holdings’ allocation, which has been the best performing part of its £1.9 billion portfolio in the past two years. It is anticipated that the new allocation to rising stars will be spread across two to five managers.
‘This is no compulsion for us to use this, but it is an opportunity for us to take advantage of investing with managers who are newly established or not well known at this stage,’ Hart said.
The team is willing to invest in managers who may not have a long track record or have recently set up their own business where they are impressed with their process and intellectual rigour.
Witan’s existing global equity exposure comprises of mandates run by Lansdowne Partners, Pzena and Veritas. Last year, the team reduced the number of global managers in the portfolio from five to three , after selling out of MFS and Tweedy.
Over the past five years, Witan's share price has risen by 94.8%. This compares to a 125% increase by the average fund in the Association of Investment Companies' global sector.
Witan currently trades at a 1.2% discount to net asset value, which compares to an average discount of 1.4% across the global sector.
Witan Investment Trust has made an initial investment into a global equity strategy run by Latitude Investment Management.
The allocation, which was between £10m-£15m, follows the announcement in Witan's annual report of its plans to allocate up to 2.5% of its assets in smaller mandates to more recently-established third party firms.
The trust runs £2.1bn on behalf of over 25,000 investors using an active multi-manager approach, typically using around ten different investment managers.
The allocation to Latitude, which was spun out of Crispin Odey's Odey Asset Management in 2016, was an investment in the firm's absolute return-focused Global Long Only Equity strategy.
Witan investment trust appoints Crux AM and SW Mitchell to run new European mandate
Latitude's CIO and founder Freddie Lait said the allocation "builds on our marketing efforts to date, and our desire to have a diversified client base across both wealth managers and institutions".
He added: "The Global Long Only Equity strategy is a great opportunity to broaden our offering to clients and we have received very positive feedback on our fundamental investment process."
24 April 2018, London - Latitude Investment Management (‘Latitude’), the investment boutique founded by Freddie Lait in 2016, is pleased to announce that Witan Investment Trust (‘Witan’) is investing in Latitude’s Global Long Only Equity strategy.
Witan’s investment follows the publication of its Annual report in which it said that up to 2.5% of its assets may be allocated in smaller mandates to third party managers which are more newly- established.
Witan is one of the UK's largest investment trusts, managing £2.1bn on behalf of over 25,000 investors via a multi-manager structure.
Freddie Lait, CIO and Founder of Latitude, said: “‘I am delighted that we have won this institutionalmandate. It builds on our marketing efforts to date, and our desire to have a diversified client base across both wealth managers and institutions. The Global Long Only Equity strategy is a great opportunity to broaden our offering to clients and we have received very positive feedback on our fundamental investment process.”
Latitude was founded by Freddie Lait to pioneer an innovative strategy tailored to meet the risk profile and return objectives of institutional investors and private wealth managers. The investment strategy follows an absolute return framework with the belief that diversified portfolio construction, combined with strong risk control, generates the highest available risk adjusted returns.
Latitude Investment Management, the investment boutique founded by Freddie Lait in 2016, is pleased to announce the appointment of Alex Robins as Head of Institutional Clients.
Alex brings 18 years of industry experience to the firm. Prior to joining Latitude Investment Management, he was Senior Product Manager at Sarasin & Partners LLP, and before this he spent 13 years at J.P. Morgan Asset Management as a Client Portfolio Manager.
The appointment follows a successful 2017 for Latitude Investment Management. Since the firm’sinception in November 2016 the Horizon Fund has returned 11%, a compound return of 8%, resulting in first quartile performance against its peers and substantially ahead of inflation at c.2.5%. The assets under management at the firm have more than trebled over the same period.
Freddie Lait, CIO and Founder of Latitude Investment Management, said: “We are pleased that Alex has joined the team. We’ve been impressed with the demand from investors since we launched,and Alex’s appointment will continue to build on this recent momentum. I am certain that his extensive experience will prove highly beneficial to Latitude over the years to come.”
Alex Robins commented: “I’m delighted to be joining the team at Latitude. In a world of low returns and high volatility, the fund’s absolute return strategy is an exciting prospect for institutional investors.”
Latitude was founded in April 2016 to provide long only investment strategies for institutional and private wealth investors. The Horizon Fund charges a 1% management fee and no performance fee.
Facebook has "lost its way" and has been an unattractive stock for a long time, says Freddie Lait, chief investment officer at Latitude Investment Management. "I would use this opportunity to be buying" Alphabet though. Lait talks with Matt Miller and Guy Johnson on "Bloomberg Markets: European Open." (Source: Bloomberg)
Freddie Lait of Latitude Investment Management says we're entering the late stage of the bull market, uncertainty at the company level is increasing.