The Case For Active Equity Investing – A Fund Manager’s Perspective
Oct 25, 2024
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In this discussion, Alister Hibbert, head of BlackRock's Strategic Equity Team, shares his expertise in active equity investing. He explains how strategic, informed decisions can help investors outperform the market. The conversation dives into finding companies with long-term growth potential, using Bernard Arnault and LVMH as a prime example. Alister emphasizes the importance of patience amid market volatility and explores how macroeconomic factors like aging demographics and AI influence investment strategies and opportunities.
Active equity investing entails a disciplined approach to identifying companies with strong competitive advantages and long-term growth potential.
Navigating market volatility requires investors to focus on fundamental analysis and maintain a long-term perspective rather than reacting to short-term market fluctuations.
Deep dives
Strategic Equity Investing
Active equity investing requires a strategic approach that goes beyond simply picking stocks to outperform the market. Successful investors focus on identifying extraordinary companies that exhibit strong competitive advantages and sustainable growth potential over a long-term horizon. For instance, an investor might narrow their focus to about 50 companies out of thousands, selecting those with high barriers to entry and exceptional brand value, like luxury goods or established technology firms. By emphasizing long-term growth and value, active investors can capitalize on the unique opportunities present in the equity market over a five to ten-year period.
Navigating Market Volatility
Market volatility, exacerbated by rapid geopolitical changes and macroeconomic uncertainty, demands a calm and steady investment approach. Investors should avoid being swayed by short-term noise and headlines that can lead to erroneous narratives about the market, such as fears of sticky inflation or impending recession. It's crucial to focus on fundamental company analysis and assess the long-term viability of investments rather than react impulsively to transient market conditions. This disciplined approach helps investors maintain their positions in fundamentally sound companies despite market fluctuations.
The Role of Behavioral Finance
Behavioral finance plays a significant role in active equity investing, especially in how investors react to market pressures. Fund managers must be aware of their psychological biases and the tendency to make myopic decisions during downturns, which can lead to missed opportunities. Unlike private equity investors, who can hold onto underperforming assets until conditions improve, active equity managers often succumb to the market's daily price fluctuations, resulting in premature sales. By fostering patience and a long-term outlook, investors can resist the urge to react to short-term challenges and ultimately enhance their investment outcomes.
Active equity investing isn't just about picking stocks, it's about making informed strategic decisions to beat the market or generate alpha. But what does that really mean for your portfolio, and how can you consider long-term investing strategies when faced with volatile markets?
Recorded live in London at BlackRock's annual UK Wealth Investors Forum, joining Oscar is Alister Hibbert, head of BlackRock's Strategic Equity Team. Together they explore the nuances of active investing, how to be selective when considering companies for a portfolio, and how to think long term when faced with short-term headwinds.
Sources: “Bernard Arnault & Family” Forbes; “Obesity Market to Reach $150B as Demand Grows, Supply Stabilizes” Reuters; “Who is Bernard Arnault” CNBC
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