Schroders glories in Leicester’s value-investing triumph
Congratulations to Schroders for an unexpected and extraordinary triumph in piling in on Leicester City’s coronation as English football champions at the weekend.
Switched at birth? Ranieri and Podmore
UK newspapers have devoted lavish front-page coverage to the Foxes’ progress from relegation candidates last season, early outsiders to win the title this term at odds of 5,000/1, towards early and easy triumph, hailing it as one of the best stories in global sporting history and a sign the underdog can triumph.
Let’s recognize that Leicester built not so much a team as the mother of all value portfolios. Its most-used starting 11 players cost just £23 million, less than half what Manchester City paid for a single young winger – the frail and disappointing Raheem Sterling – and a fraction of the £200 million cost of Chelsea’s most-used starting 11.
Podmore says: “Investors, like football clubs, often fail to adjust sufficiently from [price] anchors, which impairs investment decisions. Leicester City managed to seek out the value in non-league clubs and abroad. They weren’t chasing the glamorous and expensive names that were over-analyzed by the market.”
The portfolio had low turnover, suggesting high conviction in the players, while other clubs chopped and changed their teams. Podmore makes no concession to jealous fans of rival clubs wondering if the drug testers were frequent visitors to the King Power Stadium this season. Instead, he deftly offers that, like Leicester City, the fund managers at Schroders seek value over time and don’t take gains too quickly or avoid risks. “We buy our stocks and play the long game.”
Of course, the central figure in the Leicester City story is not a player but the manager, the straightforward and hugely likeable Italian Claudio Ranieri, a man who nearly missed his team’s confirmation as champions and his own first league title in a 28-year managerial career, when flying back from taking his 96-year-old mother to lunch in Rome.
'Mercy of sentiment'
Without actually naming Leicester fan and smarmy BBC football presenter Gary Lineker, Podmore notes that: “Many pundits predicted he [Ranieri] would be a failure at Leicester. Those pundits forgot that the world is unpredictable. Markets and economies ebb and flow, and are often at the mercy of sentiment.”
All in all a tremendous – and perhaps ever so slightly tongue-in-cheek – effort from the global asset manager to bask in reflected glory from a team of committed east Midlands cloggers.
A good effort, too, to deflect visitors to Schroders from yet more comment on the firm’s apparent contempt for the governance processes it has championed for other corporations in naming retiring long-serving chief executive Michael Dobson as chairman. Supported by the Schroders family, that proposition just got through the shareholders meeting at the end of April despite a large protest vote from independent investors.
No lessons here from Leicester City, sadly. It will be a while yet before the fans want to see Ranieri move up to director of football.
Diplomatically, Podmore appears to favour continuity. He points out that Leicester’s odds to retain the title are 33/1, long for any reigning champion but a lot shorter than 5000/1. “In some respects, this is where the work really starts and when loss aversion might really take hold,” he says.
“For over 200 years, we at Schroders have not unnecessarily tampered with our processes, our values and our client relationships. If Leicester City sticks to its long-term, tactical success with low squad turnover and an absence of fear, history might just repeat itself.”
Don’t push it, Podmore.