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Teamwork, integrated research and a dynamic style prove a winning formula

THREADNEEDLE CAME away with a clutch of sector trophies in the South China Morning Post Fund Manager of the Year 2004 awards, and Alex Lyle, head of managed funds, attributes this success to an investment process that revolves around four tenets - teamwork, integrated in-house research, a dynamic style and risk control.

The British-based investment management house claimed four equity fund awards for its performances in Britain, continental Europe, North America and Latin America, and one fixed-income fund award for its pounds sterling bond fund.

This follows a sterling performance last year, when the company was Best Performing Fund Management Group over three years and the year before, when it was best group over five years.

'Our success is a direct result of our adherence to a team-based, integrated process which enables us to formulate individual research ideas in both a macroeconomic and a strategic context.' Mr Lyle said from Threadneedle's London headquarters.

'We like to refer to the culture we've instilled here as being one of 'joined-up thinking'. You can see how this operates in practice by reference to the four central tenets of our investment process.'

Teamwork meant no one laboured in isolation, Mr Lyle said.

'We recognised from our inception that no investment professional can be expected to be an expert in every field.

'For this reason we took the unusual move of combining the traditionally separate roles of fund manager and analyst. This sees each fund manager being tasked with distinct responsibility for a sector or sectors within their specialist region.'

To encourage communication among its fund managers, Threadneedle houses all of them on one floor so information and views can be disseminated quickly and research findings can be constantly challenged and revised.

'All of our bond and equity fund managers operate from a single open-plan investment floor. The short lines of communication that this enables mean that fluid and timely information flows right across the investment floor from emerging market bonds to Japanese equities,' Mr Lyle said.

Threadneedle's integrated in-house research process emphasises the pooling of knowledge to maximise its value.

'At Threadneedle we like to say that 'information is cheap - insight is rare'. The ethos behind this observation is what drives every aspect of our research process from top to bottom.

'We believe that only through pooling the various knowledge sets within our business and contrasting the perspectives they provide can you hope to produce a reliable way to consistently add value for investors.

'Each month three core meetings are held using the input from our individual managers and it is the output from these which provides the backdrop against which all of our portfolios are subsequently adjusted.

'By delegating responsibility directly to specific individuals in the team we're able to establish clear accountability while side-stepping the obvious risks of consensus decision-making.'

The first meeting sets out the company's overarching 'top-down' view by examining the economic variables at play, such as growth, inflation, interest rates, bond yields and currency movements in the major global markets.

The conclusions arrived at here feed down to two other meetings - the investment themes and global sector strategy meeting, and the asset allocation and regional strategy meeting.

'The [investment themes and global sector strategy] meeting attempts to rationalise our view of global markets on a sector basis, as well as incorporating any discussions on emerging investment theme research,' said Mr Lyle. 'This enables us to produce a 'global sector overlay' - essentially our recommendations for overweight or underweight positions for each industry sector.

'The asset allocation meeting looks at liquidity analysis and a range of valuation measures along with the earnings forecasts generated by our regional desks. This results in our house view of recommended positions for a balanced fund.'

As an example of this 'cascade of information and cross fertilisation of ideas' guiding investment strategy at Threadneedle, Mr Lyle pointed to the company's timely exit from the technology, media, telecommunications sector  in early 2000.

'A combination of factors such as the Federal Reserve noticeably acting to draw in liquidity that year naturally put our equity team on its guard,' he said.

'However, it was the observations of our bond team, which was increasingly worried on the fundamentals of the sector and the rising yields that it was seeing, that triggered our timely move away from the sector.

'It is this attempt to understand the dynamics of change that lies at the heart of our research philosophy.'

The flexibility shown in that instance hints at the company's third tenet - dynamic style - which refers to the fact that Threadneedle does not lock its investment managers into one style.

'Instead ours is a pragmatic approach which will see us pursue growth or value strategies depending on what we judge to be of most benefit in the prevailing environment,' Mr Lyle said.

He said active risk control, which had been embedded in Threadneedle's approach since its inception, continued to add great value to its business.

Threadneedle, previously a division of Zurich Financial Services Group, was acquired by American Express about a year ago. Since the takeover, Mr Lyle said the London-based fund management house had benefited from stronger distribution.

'The acquisition of Threadneedle by American Express has brought a new impetus to the business - particularly in relation to the distribution of our products and brand. We have been delighted with the benefits that the deal has brought us so far, including the distribution into Asia of Threadneedle's skills through some sub-funds in American Express's SICAV.'



Threadneedle puts in a sterling performance