The all rounder versus the specialist

The all rounder versus the specialist

In the realm of investment management, the debate between employing a portfolio of specialist managers versus relying on a single “all-rounder” manager is akin to comparing the performances of decathletes to individual event specialists in athletics. The 2024 Summer Olympics provide a compelling analogy to illustrate why a team of specialists often outperforms a generalist.

The Decathlon vs. Individual Events: A Performance Comparison

The decathlon is a grueling event that tests an athlete’s versatility across ten track and field disciplines, including sprints, jumps, throws, and distance running. Norway’s Markus Rooth clinched the gold medal in the men’s decathlon at the 2024 Olympics with a total of 8,796 points, setting a national record.

While this achievement underscores his exceptional versatility, it’s essential to recognize that decathletes typically do not reach the same performance levels in individual events as specialists do.

For instance, in the men’s 100 meters at the same Olympics, the gold medalist clocked a time of 9.79 seconds.

In contrast, Rooth’s 100 meters time during the decathlon was 10.71 seconds, significantly slower than the specialist sprinter.

This pattern holds across other events: specialists often achieve superior results in their focused disciplines compared to decathletes, who distribute their training across multiple events.

Translating the Analogy to Investment Management

This athletic analogy mirrors the investment world. A single manager attempting to oversee a broad spectrum of asset classes and strategies may not achieve the same level of expertise and performance as a team of specialists, each dedicated to a specific area. Here’s why a portfolio of specialist managers is advantageous:

1. Deep Expertise: Specialist managers possess in-depth knowledge of their specific domains, enabling them to identify nuanced opportunities and risks that a generalist might overlook.
2. Focused Strategies: By concentrating on a particular asset class or investment strategy, specialists can develop and implement more refined and effective approaches.
3. Risk Mitigation: Diversifying across various specialist managers can spread risk, reducing the impact of any single underperforming asset class or strategy on the overall portfolio.

• Multi-Manager Approaches: Some investment managers have adopted multi-manager strategies, combining the expertise of multiple specialist sub-managers to build global portfolios. This approach leverages diverse perspectives, aiming for more robust performance. By specialising in areas with different managers we can access their relative strengths and deep areas of expertise. Examples of this approach see us using Milford Asset Management for Australasian Equities, Dimensional Fund Advisers for Global Bonds and Equities, and Harbour Asset Management for NZ Corporate Bonds
• Active vs. Passive Management: The shift towards passive investing has challenged active fund managers. Instances where active managers underperform relative to passive benchmarks highlight the difficulties of adopting an “all-rounder” approach. Where we believe that there are no active managers that have a strong comparative advantage in different asset classes, we will invest in different index managers such as Simplicity and Kernal.

Conclusion
Just as individual event specialists often outperform decathletes in their respective disciplines, specialist investment managers bring focused expertise that can enhance portfolio performance. By assembling a team of specialists, investors can harness deep domain knowledge, implement targeted strategies, and mitigate risks more effectively than relying on a single generalist manager. This approach aligns with empirical evidence suggesting that specialized management often leads to superior investment outcomes (refer our performance for the December 2024 quarter).