Why I always respect the market

January 2025

James Harwood
Director, Senior Portfolio Manager, APAC
Russell Investments

What is your day job?

I'm a Senior Portfolio Manager at Russell Investments and oversee our Australian Opportunities Fund. It is an Aussie share fund that’s included in the Cornerstone portfolios.

I’ve been at Russell Investments for more than 11 years, after a previous career in finance in London.

The Australian Opportunities Fund is a “multi-manager” fund. That means instead of investing in shares ourselves, we allocate the majority of our clients’ money to six fund managers with different investment strategies.

Different strategies perform well at different times, so a multi-manager fund uses a combination to produce consistent returns.

The fund’s aim is to perform better than the Australian stockmarket as a whole. 

What are the funds actual investments?

One of our fund managers is Platypus Asset Management. Platypus use a “growth” investment strategy, which means buying companies they believe have better growth prospects than others. Platypus outperformed the overall sharemarket by almost 10% last year. 

Another firm used in the fund is Allan Gray who use a “value” investment strategy, buying companies that are out of favour with other investors. Value investing struggled last year but Allan Gray outperformed thanks to its holdings in specific stocks like medical supply company Ansell.

Ansell’s sales of items like medical gloves were strong during COVID-19 but there was a subsequent glut in supply that impacted its bottom line. However, as evidence emerged that the destocking cycle was over, the stock recovered sharply helping Allan Gray’s portfolio to outperform.

The fortunes of these two fund managers in 2024 highlight the whole point of multi-manager investing – diversification of investment styles. 

Are there any risks with multi-manager investing?

One challenge is that combining fund managers can unintentionally skew our holdings in a stock or sector. A good example is the big banks.

Most fund managers are usually underweight banks as they tend to believe there are better opportunities in the market. That is true for the managers in the Australian Opportunities Fund and meant it was underweight bank shares before they rose strongly last year, led by Commonwealth Bank. 

To overcome such situations, we use an additional tool – called an “active positioning strategy” – that lets us buy shares ourselves to optimise the fund’s holdings. We used this strategy to great effect last year, including by plugging the gap in bank shares so our clients didn’t miss out on the sector’s gains. 

What’s the biggest lesson you’ve learnt in your career?

You need to respect the market. You might have a strong view, but the market is essentially the combination of everyone’s views – a share price reflects what every single investor thinks about a company.

I’d always advocate “averaging into” the market if you want to take a position – that means buying a series of small stakes over time rather than investing a single lump sum all at once. It’s difficult to pick the absolute right time to invest, so averaging manages the risk of getting it wrong.

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