ANJLI - THE SMALL CAPS EQUITY INVESTOR
LIMITED EDITION BONUS TRANSCRIPT
"It's okay to not know absolutely everything and it's okay to make mistakes, learn from them."
Anjli Shah is an Investment Director on the Smaller Companies Team at Aberdeen Standard Investments. She is the co-manager on the Global Mid-Cap Strategy and provides research support on US Small and Mid-Cap Equities. Anjli joined Standard Life Investments in January 2016 from Stifel (previously Oriel Securities) where she was an Equity Research Analyst. Prior to this, she was a Banks Analyst for the Prudential Regulation Authority (PRA), Bank of England for 2010-2014. Anjli has 5 years’ experience at ASI and 10+ years industry experience. She has BSc (Hons) in Economics from The University of Warwick, CFA and IMC.
Hi, I'm Gillian,
And I'm Sophie. And you're listening to Breaking Through Careers Investment Management Edition with Future Asset, where we demystify the industry that is Investment Management.
Each episode we explore a new asset class or role to find out what our guest does on a day-to-day basis and what they did in order to get there.
We'll also be joined by a keen school student each episode to help ask the questions you want to know the answers to.
Do you need to study economics at a certain university to get into...
What's the difference between active and passive investment?
Quam funds? Indices? Can you please speak normal English!
I thought you needed to be posh to work in investments....
On a scale of 1-10, how boring would you say...
Am I going to need to get a pinstripe suit?
Welcome to Part Three of the smaller companies equity investor. In Part One, Anjli talked us through her average day, described the process of investing in a stock and let us know which skills you need to be a good equity investor. "Investors don't actually bring value to wider society, they just make rich people richer, which leaves poor people poorer." Myth or fact?
Oh, my gosh, myth, myth, total myth. If anything I think it is so the opposite, right? I'll explain this from two different angles. First of all, think about why anyone invests, so whether you are rich in real life or not, or whether you're not very rich, all of us want to have a better quality of life, all of us want to have a future where we are going to be financially secure. So investing in the stock market, while obviously there's no guarantee that you're suddenly going to have a nice life, you invest in it, because you're thinking about your financial wellness, you're thinking about wanting to invest, because you've got a particular goal in mind. So I'll give you a really easy example, say you're putting money into your account every month, you're not doing that for fun, you're doing that because you're saving towards a particular goal. Whether it's being able to go on holiday, buy a car, whatever it is, you're doing it because you want to be in a position where you can do certain things in life. So by using the skills of a fund manager, yes, it's true that we're remunerated. I mean, look, this is the world, nobody gets anything for free. But by using the skills of a fund manager and investing in a fund, hopefully, if that fund does well, you can be in a much better off financial position, and then go on to accomplish whatever goals you had in mind for what you wanted to do with that money. The second angle on it is from an ESG perspective, and I'll explain what I mean by ESG. So that is environmental, social, and governance. A part of the role of being active equity investors versus, say, passive investors, is that you use your ability to kind of influence the company and help change that company for the better. So there's different ways of investing. One is that you say, I'm going to strip out any companies that do something which I perceive to be bad for society. So for example, I'm not going to invest in gambling stocks, tobacco stocks, or oil and gas stocks, because it's all bad for society, bad for the environment. And the other kind of school of thought around it is I'm going to invest in companies, which are actively doing something good for society, because they're going to have a really positive impact on someone's life. So companies, particularly in say, health care, are examples of these kinds of companies, where particularly what we see in smaller companies or midsize companies is that they've come up with this new innovative medical device that is really going to help a patient who has a particular disease manage that condition a lot better, and really reduce the burden of therapy. That is an example of positive investing, which is also leading to good for society. I know I can't mention specific stocks here, but I could give you so many examples of that. So I absolutely think that we have a role as responsible investors. And I think we really can make a difference to people's lives, whether it's their financial goals and wellness, or from the type of companies that we're investing in so we can do good, as well as bad but I would hope that it's more good.
"The Wolf of Wall Street and Industry are representations of what it's like to work in investments." Myth or fact?
Myth because without getting too hung up on technicalities, Wolf of Wall Street, etc. A lot of them tend to be representations of what they think the sell side of investment banking is like. And I can tell you from my days of work on the sell side, I've never once had a day like The Wolf of Wall Street, thankfully! I never went around the office beating on my chest and like singing weird humming ads, like that never happened! And actually, it's a much more professional environment, I think it would be wrong to say that the industry hasn't evolved, certainly before the financial crisis, it's fair to say that there was some unprofessional behaviour or excesses or that it wasn't particularly diverse. It was a very boys club, and whatever. And I think, since the financial crisis, because first of all, regulation has got that much tougher, a lot of these investment companies and banks can't behave in the way they were perhaps behaving before. But I think it also really opened people's eyes about things that needed to change. So one of the regulations that has come in is something called MiFID 2 - which you love acronyms - but basically, it's the markets in financial instruments and derivatives and basically what that regulation tries to do is make it very, very clear what clients are paying for. And they've tried to make it a lot more transparent as to what is the cost of trading, versus what is the cost for research. And because you have this clearer kind of separation, and you have information barriers between different parts of the business to ensure there's no conflict of interest, etc, there's definitely been a tightening up of behaviour, and you're forced to be a lot more professional as a result. So I'd love to say that the industry has learned all its lessons, and it's now perfect, but unfortunately, that's not the case. But I think at least we're definitely moving in the right direction. But I would find it very, very strange to think there's any companies out there that act like off of Wall Street, or what's depicted on TV,
I really can't imagine you sort of downing a bottle of wine standing up on your desk and be like: "Alright, it says sell give me 300k, best price stat!".
Haha! You know, when you're on a sales floor, you're surrounded by sounds and there's various like phones ringing, there's alarms going off. The first day I actually worked on the sell side, I had such a headache because the level of noise was unreal. And you do get people saying I've got this client looking for XYZ. And that's normal. But it's not to the point where people are kind of showboating and standing up on the desk and drinking alcohol, etc. I mean, that sort of behaviour is just completely unacceptable and unprofessional. And I think if anyone even tried to imitate that kind of behaviour, you'd quickly be called in to see HR and let's just say he wouldn't be there after the end of that conversation.
So I'm really interested in the stat that you started with, actually, and one our myth busting questions is: "There are
basically no female equity fund managers." Myth or fact?
So that is a myth....There are female fund managers, unfortunately, probably not enough. We're not representative of wider society. So as I mentioned, I think it was like less than 15% globally are females that run funds basically. So definitely needs improving, particularly because there's just been really interesting and various studies, which actually say that females are better investors, because perhaps they're calm or will see like different angles.. I don't know exactly why. But, you know, what is definitely true is that more diverse teams outperform. And this is where actually, my earlier point of having people from all walks of life with different experiences is really valuable. And that really helps to improve performance for an investment team. So yes, I am a female equity fund manager. And actually, I happen to work in a team where there's more female fund managers than there are male fund managers, which is a bit of a rarity, I guess, in the industry. Because usually, it's definitely the other way around. But I think it definitely needs improving. I think we are seeing improvements. And I think by doing podcasts like this, being open and talking to people who are females in the fund management industry, hopefully it gives you a better insight and encourages you to go for this industry. Because I think one thing that I really like about it - and I'll tell you this apart from what I said earlier about variety and all that stuff - is at the end of the day, when you're buying a stock or putting an investment recommendation forward, it doesn't care whether you're female or male and in that sense, the numbers don't lie. If you've put a great idea forward, and that stock has outperformed, it's reflected in the numbers. And numbers don't care whether you're male or female. And that's one thing I really like about this industry.
I love that that's such an uplifting bit, and you are right, one podcast at a time and they are going to change it. I'm coming on to our last myth or fact statement. "In a matter of years, there will be no need for active equity investing, as everyone will be in passive funds." Myth or fact?
Myth. I'm not just say this because I'm an active fund manager and I have to say it because otherwise, you know, it would be really, really bad and going against everything that I'm currently doing! Okay, so let me explain this in a few different ways. I think first of all, different pockets of the market have different levels of efficiency. So small, midsize companies typically have less coverage. So there's fewer sell side analysts that follow those stocks. And as a result, it's very easy to miss something on them. And that's why there's a real opportunity to uncover what I call hidden gems, and really make some good returns on that. And I think in order to do that, you need to have an active approach. There's no point going and buying what the index says, because you're going to miss those companies that are not well known. So that is one reason for active management, particularly, because I think some areas of the market, I don't want to say you can exploit them, but they're just not as efficient. So there's potentially more value add for you to bring to the table. I think the other point is around ESG. So what I mentioned earlier, so when you're a passive investor, you basically go and buy the index. And unless the index specifies that it's looking for companies which have good ESG ratings, it doesn't care. Essentially, it doesn't care whether it has a good score, bad score, what this company is doing for the environment or society or whether it has good governance or not. But when you are an active manager, it's something that you put a great deal of focus on. And you decide whether this company is fit for purpose in terms of governance, social and environmental standards, and whether this company is doing something good. And you want to encourage this by buying the shares of this company. So I think that's another important area where active managers really help. And actually, that's even true when, say, something has gone wrong in the company. Or not even wrong, but say there's something happening in the company, which you don't like or you don't think is good for shareholders. So whether it's the fact that the Board of that company is not diverse, the chairman and CEO have a dual role, or the company needs to be better on its environmental practices, etc. This is where actually being an active investor is really helpful, because you have the ability to engage with these companies to talk to senior management, and explain to them why they should change their behaviour, and encourage them to improve for the better. So I think that's another area where active management really helps. And you know, if you disagree with something, even after engaging, you have the ability to then vote against the company when it comes to the annual general meeting to make it clear what your dissatisfaction is. So I think that's really powerful. And the other thing that I would say, is expertise. So particularly, you know, when markets are going up, everyone's in a kind of great mood thinking: "Yeah, great!". But what is really challenging, is doing well when markets are extremely volatile, or the really difficult conditions because the macro economy is not doing so well. It's not clear what's happening. And this is where buying a passive fund that tracks the index, you're not going to do any better than the market, you're going to be riding that seesaw all the way. Whereas if you have an active manager who has expertise who can offer downside protection, that can be very, very helpful during those challenging and volatile market conditions. So I definitely think there is a role for active management.
Oh, I'm so relieved..... I'm joking! Fantastic. Thank you so much. And we've learned so much so far. But in our final section, we're going to try to give Amy some really specific advice on how she can get to where you are today and persuade her to join the industry.
So why should I join the investment management industry?
I think it is one of the most dynamic, variety filled and interesting industries you can work for. I don't think I've ever had a day where I felt really, really bored and felt like I knew everything. There's always something going on that's new, there's always a new company to meet. There's always something to learn. And I really, really like that. I think if you like being challenged, if you like learning, this is definitely the industry for you. Because no day is the same.
And why should Amy do smaller companies in particular?
Yeah, so obviously, I'm really biased on this one. But I think small and mid sized companies are so, so interesting. And I'll tell you why: I think you're meeting companies at a very early stage in their life. And these are companies that are typically, you know, they've come up with this great innovation, or they're very disruptive in some way. So they're really going to change an industry, they're going to gain market share of older, more established companies, they're going to lead that change, which is really exciting. And they're often growing very, very rapidly. And because they are less well-known, there's potentially more value add. So there's a chance for you to really make a difference in terms of what kind of return profile you can generate as a result. So I think that's why smaller companies is really interesting. And often you see that when smaller companies perform well, and they're gaining traction, they then start to expand into adjacencies. So whether it's product adjacencies or different geographies, and again, that is the next phase of growth in the journey. But you know, essentially, why you should look at smaller companies is because these are going to be tomorrow's future leaders. They're going to become tomorrow's large cap leaders, particularly if their growth is backed by structural trends. And I think that's what makes them really exciting.
Now we're sitting in the unique position, Anjli, that yourself, Gillian and I are all working at the same place. I've been waiting for this episode! So, could you in your best sales pitch, almost, taking my job from me as an early careers professional, could you tell me why you think Amy should join your firm and what makes Aberdeen Standard Investments stand apart from our fiercest competitors?
Yeah. So look, I'm going to be really honest with you. And I think whenever you read a corporate website, and the career section of the website, every company sounds like it's promising everything. And it's all great. And all the buzzwords stand out: "Oh, we're a true meritocracy" and "oh, well, we're really global in nature, etc.". But I think one thing that really makes me happy about working here is, even though you're coming in at a relatively inexperienced or junior level, you have the opportunity to get a great deal of responsibility and exposure really early on in your career. So typically, graduates, who join Aberdeen Standard Investments, they're put into one of the equity teams, so whether it's a large cap, European team, large cap UK team or the small cap team. And then you're typically given a sector or region that you're responsible for. And it's up to you to kind of research these stocks to form your view and put your investment recommendation forward. And yes, you will get challenged, etc. But equally, sometimes people will agree with you, and they will follow your investment recommendation. And I think it's a great thing as a junior or more inexperienced member to see that your investment recommendation has made a real difference. And as a result, people are putting money into your idea. And you can see that real change in a fund. So I think that is really, really good and interesting. The other thing I would say is that it's a real team-based culture. So we have a number of very, very experienced and well respected fund managers and they are great mentors and great people to learn from, but no one is like a star and bigger than someone else. It's very much a team-based culture. And a lot of the teams actually operate on a product or geographical pod or fund style basis where everyone has a say as to what's happening in the fund and what actions you're going to take. So again, I think that's really interesting. I just think it's a friendly place. I've gotten to know Gillian and Sophie really well, made some really great friends along the way. So yeah, I think that's why.
I absolutely think that you've hit the nail on the head with that. And just as far as a lot of the feedback I've had from graduates and interns have come in, I think that there's this surprise almost, that there's so much autonomy that you can have early on. And that actually your opinion does matter. And the fact that someone might have years and years of experience, but actually, that makes your new fresh way of looking at it even more interesting to pick on. So that autonomy, that friendliness is definitely something I hear. So for anyone listening, I can just concur and further that that's definitely what it's like to be here!
And I think that's also reflected in the fact that it is a performance-based culture. So when you get more into your career, everyone's investment recommendations are measured. And then that becomes a feature of your compensation package overall. Of course, no guarantees and all of the rest of it. But that is an example of where, if you're doing well, and your ideas that you're putting forward are doing well, you can be remunerated for them. And I think that is definitely a good thing.
Well, now that you've persuaded me to do smaller companies equities, at Aberdeen Standard Investments, what three pieces of advice would you give me to help me get to where you are just now?
Work really hard at whatever you're doing, it sounds really cliché, but whether it's you studying for your qualifications, or embarking on an apprenticeship or getting work experience, that attitude of: I'm here to learn, I'm here to absorb, I want to create a good impression of myself, is really important. So work hard, demonstrate your passion is number two, we can all read something off a website and say: "This is what I think investment management is." And I've kind of given you my take on how I see my job and my day-to-day, but the thing that will carry you through is your passion. This is a job where, unfortunately, you have good days and you have bad days, sometimes when the markets are going against you and your ideas aren't making money, you don't feel good on those days. So actually having that perseverance and that passion of: "I like investing, this is why I like investing", is really important. And a lot of people actually ask me: "Okay, if I'm coming in as someone who's inexperienced, how can I demonstrate my passion?" So if you're at university, they often have investing clubs, or financial societies, etc, that you can join. Other people, if you've got some money, you may wish to buy your own stocks and see how they perform. Now, of course, not everyone has the money or is in a financial position to do that, particularly when they're at a young age. So actually, there's some really cool online tools, where you can basically build a model portfolio, so there's no money exchanging hands and it's all free to use. And it's essentially just software, but you can go in and pretend to buy some shares of companies, and you can follow them over time and see what's doing well, what's not doing well. And again, that just demonstrates your passion of why you're interested in investing. And who knows if your portfolio does really well, you can be like: "Hey, guys, look, I did outperform, this is why you should hire me." And I think the final piece of advice I'd give is trying to get as much work experience as possible. I do believe that learning, whether it's in the classroom, or through a textbook or whatever, that is all relevant. And that builds a good foundation for you. But nothing quite prepares you for the world of work. No textbook is ever going to tell you what it's going to be like in the office and how this industry is on a day-to-day basis. And that's why actually doing work experience is really helpful because it gives you an insight into how that industry is, how that company operates, what the culture of that company is. And you also get exposure to people who are working in that industry. And who knows, they could go on to be good contacts or network for you in future. So that's the other thing I'd really encourage. Try and get as much work experience as you can. And I think it's also good for you in the sense of, I've done a few different jobs now in my career. So I started off as a central banker at the Bank of England then went on to be a stockbroker, and now I'm a fund manager - so while all financial services related, quite different parts of the industry. But actually it's given me a better or more wholesome understanding of how the industry operates and how it works together. So I think that's been really helpful.
That's been fantastic! Thank you so much Anjli. Amy, has she managed to persuade you?
Yes, she has. I've learned so much! So thank you for that.
No problem. And yeah, happy to take any questions and I really enjoyed it. And, in fact, you've actually asked me some pretty hard questions, I have had to scratch my head and I've had to think as well. So it's definitely been good.
Well, that's proof that Amy can make a great fund manager one day then.
Thanks for listening. Please join us again next episode as we hear some more truths, learn some more jargon and bust some more myths.
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