Capital International’s group chief investment officer Jon Proudfoot tells Emily Moore how a mix of independent thinking and rigorous research drives the firm’s approach
WHEN asked how he would describe the stock market, legendary investor Warren Buffett said it was a “device for transferring money from the impatient to the patient”.
And this is a philosophy which resonates strongly with Capital International’s group chief investment officer Jon Proudfoot, who says one of the secrets to successful investing is often staying still.
“The instinct when markets move is often to do something,” he said. “Some people think that activity equals results and so they might make trades or tinker with their portfolios because doing something makes them feel productive. However, in practice, too much trading typically harms returns over the long term, which is why we focus more of our time on research and analysis to help clients build a resilient portfolio.”
Having worked in the industry for many years, Jon, who was born in Jersey, started his career at a fund of hedge funds, an experience which introduced him to “some of the best investors in the world”.
He built on these early learnings during a decade in New York, “working right in the heart of where the majority of hedge funds are based”.
“That was an amazing experience,” he reflected. “I was right in the thick of it, and over those ten years, I covered almost every major strategy group – the big multi-strategy ‘pods’, all manner of equity strategies, commodity traders, systematic strategies and global macro funds. It was a great education in the huge variety of ways in which people can approach investing, source ideas, construct portfolios and manage risk.”
And it was not just his professional life which developed during his time in the Big Apple, as it was while in the States that Jon met his now wife, Ashley, with whom he has two young children.
“It was shortly after our second child was born that we decided to move to Jersey, where I stepped into private wealth, joining Affinity Private Wealth in 2021. Their investment business was acquired by Capital International Group Limited in a deal that completed in autumn last year,” he explained.
While Jersey and New York may offer very contrasting lifestyles, the experience and education that he gained while away very much shapes his approach to investment management and complements Capital International’s commitment to giving investors access to a broad range of asset classes.
“Critically, given the way in which market dynamics can tempt you to ‘do something’, it is vital that people have a clear investment philosophy and framework before they start allocating capital,” he said.
“Without that, it is uncertain what people are looking for and when, which means that a fear of missing out can lure them into changing how they do things and making decisions at the worst possible time. For instance, there were value investors who threw in the towel and bought technology stocks near the peak of the dot.com bubble, only for that bubble to burst shortly afterwards.”
While there are always peaks and troughs in the markets, the geopolitical situation over recent years and developments such as last month’s SpaceX initial public offering have, says Jon, contributed to their volatility.
“These events have created quite a lot of noise, and the key is sticking to our investment process and not becoming distracted by the headlines,” he said.
“Our philosophy is based around independent thinking combined with rigorous in-house research. We are very much active investors, so we ‘do our own cooking’, we don’t hug the benchmark. That means we follow our own independent approach; we’re not just doing the same as everyone else. But we have a clear and consistent process, so we maintain what we call our ‘rhythms and disciplines’ to enable us to invest in a clear and repeatable manner.”
Each week has a clear structure to it, with dedicated workflows for asset allocation, equities, fixed income, funds, key themes and sustainability, all of which feed into the investment committee.
“Within that work there is a combination of top-down, thematic and bottom-up company analysis,” he explained. “A key aspect of my role is then to assimilate the macro and market backdrop with the team’s high-conviction views, which then drives our investment strategy and asset allocation.”
Also guiding the approach is Capital International’s Conscious Capital ethos.
This ethos helps guide all of our investing, including our core strategies, which are fully performance-focused but also enable people to invest “in a deliberate, thoughtful way”.
“We are signatories to the UN Principles for Responsible Investment, which provides a framework that helps us to evaluate investments, steward capital responsibly and balance opportunity with accountability,” Jon said.
“We then have our Better World strategies where we emphasise that profitability and sustainability are not mutually exclusive and that, increasingly, the most successful companies are those which are also forward-looking, well governed and using resources most efficiently.”
Going back to the ‘own cooking’ analogy, what does Jon see as some of the key ingredients which go into a strong portfolio?
“We believe in constructing diversified and differentiated portfolios,” he said. “A lot of firms follow a more traditional approach, building portfolios primarily via stocks and bonds, but we tend to make more use of liquid alternatives and real assets. We find this serves us well in terms of being able to navigate changing market regimes, particularly in a world of stretched government debts and deficits.”
Stressing the importance of balance in portfolio construction, Jon added: “We always look at which parts of our portfolio are in-favour and which are somewhat contrarian. We try to be early to new themes and to identify opportunities which we think are under-appreciated. But it is also important that we build portfolios which deliver when clients expect them to, so this needs to be balanced with exposure to segments which are already performing well.”
It is also important, says Jon, to be thoughtful when it comes to diversification.
“For us, it is not about owning more and more holdings,” he said. “While we want to be diversified, we don’t want diversification for the sake of it. For us, the key is to combine different drivers of return. We want our portfolios to include a broad spectrum of styles, strategies, geographies and macro sensitivities, while still emphasising our highest conviction views, and allowing these to move the dial in terms of performance.”
Having diversified portfolios, says Jon, also helps to build resilience.
“We know that the market can shift quite quickly from pricing in one kind of environment to another,” he explained. “We have seen that recently with the US-Iran conflict and the closure of the Strait of Hormuz, which led to concerns about inflation, or even stagflation.
“In such events, the markets change their behaviour and then, as the situation eases and oil prices come down, the market regime changes again. Therefore, within our portfolios, we want to have different holdings and exposures that can perform in different regimes, helping us to navigate these twists and turns more smoothly.”
Also helping investors to handle those twists and turns, says Jon, is communication with Capital International’s team of investment managers.
“It is important to avoid knee-jerk reactions in times of volatility, and close dialogue with investors helps them to maintain composure through episodes of volatility,” he said. “We write detailed commentaries every quarter, explaining our view on the markets and outlining what we are doing in portfolios, and why. We believe that communication helps clients to avoid making big changes at inopportune times, which could otherwise negatively impact their returns.”
To listen to the full interview, visit Bailiwick Podcasts or click on the link below:
https://app.jerseyeveningpost.com/t/listen/theinterviewpodcasts
The views, thoughts and opinions expressed within this article are those of the author, and not those of Capital International Group Limited (Group) and/or any of its subsidiary companies and as such are neither given nor endorsed by the Group or any company within the Group.
Information in this article does not constitute investment advice or an offer or an invitation by or on behalf of any company within the Group to buy or sell any product or security or to make a bank deposit. Any reference to past performance is not necessarily a guide to the future. The value of investments may go down as well as up and may be adversely affected by currency fluctuations. The Group, its subsidiary companies, clients and officers may have a position in, or engage in, transactions in any of the investments mentioned. Opinions constitute views as at the date of issue thereof and are subject to change.
Capital International (Jersey) Limited is a subsidiary of Capital International Group Limited and is regulated by the Jersey Financial Services Commission for the conduct of Investment Business and Fund Services Business. Capital International and Capital International Asset Management are trading names of Capital International (Jersey) Limited.
