Millions are poised to watch the world’s best athletes compete as the Rio 2016 Olympics kicks off, with the fastest man on earth Usain Bolt and Britain’s most-decorated athlete Mo Farah likely to garner a good deal of interest. 
As manager of a range of multi-asset portfolios, we often discuss with clients how investing is more akin to distance running than a sprint – and that, when it comes to building a core multi-asset investment solution, the concept of winning the long race becomes vital.
Bolt and Farah do not fit the hare and tortoise of the old story – Farah is the UK’s most decorated athlete after all – but there are investment parallels to draw between the sprinter and the more patient, strategic long-distance runner. Ultimately, for investors, short-term ‘sprints’ in markets will prove far less important than long-term returns.
This year’s Olympics provide a handy lens to look through to understand this concept: while Bolt and Farah, the best in their respective disciplines, are hoping to add to their tally of gold medals, no one would suggest putting the sprint king in the same race as the distance specialist.
You need to pick the right athletes for the right events and the same can be said for fund managers – you need to choose the most appropriate ones for the environment and time horizon.
Just as you would not pick Bolt for the 10,000m or Farah for the 100m, a tracker is typically not the right choice for long-term outperformance, nor is an active manager for a short burst of market exposure.
Sprinters can be seen as akin to low-cost beta products, offering short-term market performance at a cheaper price. As these vehicles run out of stamina if the market turns for the worse however, active managers – or the long-distance runners – take over and can provide long-term alpha via stockpicking.
Active managers can think tactically/strategically and position their portfolio accordingly, much like long distance runners pace themselves and adopt tactics to ensure they target first place over the full distance.
Meanwhile, new-breed smart beta offerings can bring a middle distance element, offer short-term market performance but with an element of active management in the hunt for superior returns.
It can be difficult for investors to remain objective and disciplined, swapping out of the appropriate fund – or running style – when conditions change. Many observers might be more interested in Bolt’s sub-10 second escapades over 100m rather than Farah’s half hour 10,000 metres, just as investors are often more focused on the instant gratification of short-term performance than the long-term wealth creation effect of steady returns over many years.
But with sprinters, the race can very quickly go wrong – Bolt’s false start in the 2011 World Championships, for example, saw him disqualified. In this year’s London Marathon, meanwhile, Kenyan distance runner Jemima Sumgong claimed a five-second victory in spite of a painful fall and an apparent rogue spectator on the track.
This is where a multi-asset manager comes in and when running portfolios with a genuinely long-term perspective, it is possible to produce strong results for clients without leading the race for returns right from the start.
When managing such a portfolio, you need to choose the right fund for the right event, adding value in the long-term while coping well in the short-term. A fitting comparison could be a multi-event discipline such as the Decathlon or Heptathlon, and a portfolio should be strong across a number of areas.
If you get the mix wrong, you risk entering Usain Bolt in the high jump: multi-asset managers have a wider toolkit than ever before but this is only useful if you select the right one for the right job.
John Husselbee is head of multi-asset at Liontrust. The views expressed are his own and should not be taken as investment advice.
