For some, the logical way to profit from gambling is to refrain from betting slips and instead acquire shares in bookmakers (except Ladbrokes, an enterprise whose inept bosses seem to have forgotten which way is up).
Does it follow that buying shares in fund managers is as good a way as any of profiting from the markets in securities?
Tim Guinness, who descends from the fifth son of Arthur Guinness, creator of the eponymous black brew, believes it does.
Some three years ago, when indices were in reverse, he created the Guinness Global Money Managers fund, a unique vehicle and one whose record surely mirrors the old advertising slogan: 'Guinness is good for you.'
Predictably, the launch year was ghastly. But the 18.7 per cent slump in values in year one was followed by annual gains of 31 and 55 per cent respectively: an annualised return, to 31 December last year, of 18.1 per cent over the three-year term. The gain over the first six months of this year was 1.22 per cent.
'2011 was a deliberate decision. By 2016 [by which time the markets were expected to be in better shape] we would have a five-year record, and hopefully attract some serious money into the fund,' says Guinness.
Today, the assets of his Global Money Managers fund are a puny $6 million. In earlier years, 'we didn't do any marketing. People have had to beat a path to our door to buy us. Our marketing is very limited and aimed at the sophisticated investor. People who understand the risks'.
Almost all these early callers - Guinness mentions sums of £100,000 to £250,000 as a typical investment - were 'industry individuals', people themselves involved in asset management. This is a meaningful endorsement.
It also helped Guinness's cause that his fund won a rosette in the 2014 Lipper fund awards in Switzerland, for the best fund over three years in the 'banks and other financials' equity sector. Guinness points out that his fund provides 'geared exposure to rising equity markets'.
Balmy conditions, such as those prevailing for much of the past two years, attract huge inflows into financial assets; they also produce fat and easy profits for the industry.
A 10 per cent decline in global equities would produce underperformance, Guinness admits, 'but then we'd bounce back and outperform'. He eyes the rear-view mirror: 'There is no three-year period when there would have been underperformance.'
He maintains that the 'asset manager universe' investment return was 18.4 per cent over the 24 years from 1990, almost twice the total return of the S&P 500. After accounting for average inflation over the period, 'in real terms the... universe returned 14.9 per cent, versus the S&P 500 at 6.5 per cent a year'.
Looking forward, household wealth in the top eight OECD countries is growing faster than GDP growth, he says, and right now the rate is twice that of GDP.
Over the next 30 years, Guinness believes the ratio will rise to four times GDP, and rising affluence in emerging nations will provide a further kick for asset managers' fortunes. 'This is a bloody good wind to have in your sails,' he comments.
Reflecting the global realities of the asset management industry, more than half of Guinness Global Money Managers' assets, by value, are invested in the US, and a further 30 per cent in the UK. The spread covers some 35 companies. None accounts for more than 4 per cent of assets, and most bets were in identical sums. Why so? 'KISS. Keep it simple, stupid,' says Guinness.
'It's hard enough to know whether we want to actually own a company or not, without fiddling around with percentages [of the fund]. It wastes too much emotional energy. Keeping most holdings roughly equal [at entry point] allows us to do other things; it simplifies our lives and allows us to focus on research.'
Guinness has identified some 150 companies worldwide that suit his investment criteria, 110 of which are fund management outfits. The balance includes listed stock exchanges and banks, where 'value lies in the back office', in activities such as custodial services.
Guinness, 66, as relaxed in style and manner as many old Etonians, studied engineering at Cambridge and management science at the Massachusetts Institute of Technology.
His career, however, has been in finance: Barings, Guinness Mahon (another pre Big Bang accepting house), Guinness Flight and Investec.
Guinness was drawn to fund management on a visit to the US, where he came across a former fund management firm with revenues of $33 million (£19.3 million) and costs of $3 million. 'The eight managers ran assets of $500 million and could have run 40 times that amount and costs would remain the same. I thought: "That's the business to be in".'
When in the corporate finance department of Guinness Mahon, he told his boss: 'You're neglecting fund management.' He was told to go and run it.
The subsequent creation, Guinness Flight (his associate, Howard Flight, the former Tory MP and now Baron Flight, ran bonds and currencies while Guinness concentrated on equities), was bought by Investec in 1998. Guinness resisted the sale. 'Management owned 12 per cent and we had our backs to the wall. But we got an OK price.'
He set up Guinness Asset Management in 2003. 'For two years from 2007 we hunkered down. I hired good graduates, on half pay, and ran the business from my house,' he says.
On the grounds that good management performance attracts good inflows of new money, Guinness has built into the systems a process that screens the performance of each company's range of funds. 'I like companies where we can see 70 per cent of their funds in either the first or second quartile,' he comments.
'The mid-cap firm is where the performance is,' he continues. In contrast, he identifies many insurance companies as the industry's soft underbelly. 'Insurance companies are very lazy investment managers.'
Moreover, he says, the UK was 'a long way behind the US in the development of boutique fund management firms', and he takes a swipe at the emergence 'of the bloody hedge fund industry. They overcharge and I don't recommend investment in them'.
Guinness does not hold Man, the London hedge fund manager, but he has 12 of the other 24 fund management outfits listed in London. He does not own Schroders, however: 'They're now OK, but until a year ago I was right not to own them.'
He also dislikes Hargreaves Lansdown, fearing the likely impact of the Retail Distribution Review initiative on its business. 'I have three reasons not to buy: the price is too high, performance is off the boil - this is not now the case with Schroders - and I don't like the sector they are exposed to. I wouldn't want anything "bondy": bonds are a negative at the moment.'
For long-term investors only
Guinness identifies Polar Capital and the US asset manager Waddell & Reed as his fund's two best performers over three years.
Waddell & Reed is not well known to UK investors. In its homeland it offers investment services to US institutional clients. Polar Capital has produced a more-than-threefold total return; new inflows rather than rising markets were the reason assets under management doubled in 2013.
Indeed, Guinness believes rising capital inflows into fund management firms will more than offset the likely lowering across the board of fees charged to investors.
The stock market veteran does not believe markets are overvalued either. 'The US is fair value, not cheap, not expensive, but Europe and emerging markets are cheap.' The UK? 'I don't look at that market [beyond my tiny remit]. But I'd be more cautious. It is slightly criminal on the part of George Osborne and others not to have done more to reduce government debts.'
He has encouraging views for those investors who fear they might die waiting for the long-heralded emergence of China. The transformation of the investment and export-led economy to one of consumption reminds him of Japan in the 1970s. 'China will also have its 20 marvellous years. And I believe that, over the next three years, the best-performing markets will include China.'
Guinness Global Money Managers is a buy-and-hold investor - 'I might trade seven stocks a year, or three' - and Guinness warns investors in his creation that they need to follow the same philosophy because, in the short term, a market downturn of 15 per cent might lead to a 25 per cent reduction in its value.
'That's why it is not suitable for short-term investors. But [based on his historic analysis] over the three years after such a setback, the fund will recover faster than the market.'
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