‘At the end of the day, it comes down to the numbers’

BlackRock fund guru Mark Lyttleton says he will never tire of being told "well done" by investors.

After spending the best part of two decades at what is now BlackRock, Mark Lyttleton could surely be forgiven if he was finding the thrill of fund management beginning to subside.

After all, he has run the group’s UK fund for more than 10 years and also manages two other portfolios well in excess of £1.5bn – including the retail market’s groundbreaking UK Absolute Alpha fund.

But Lyttleton’s enthusiasm is certainly not waning.

As anyone who has had the chance to watch him address a large group of investors would attest, it would be a near-impossible task to find another fund manager with the same passion for the job.

“For me it all comes down to beating the market,” Lyttleton says. “As you know, I spend a lot of my time on the road talking to the underlying investors in our funds.

“I get a great buzz when I show them the numbers and they say: ‘well done’. It is certainly better than going to them and having to defend yourself and get depressed.

“To be honest I do not care about such things as how big I can make the funds. At the end of the day it comes down to the numbers, because that is what investors are giving us their money for. I do not know if I will get to the point when the hunger is not as strong. All I know is I have not reached it yet.”

While most managers would emphasise a commitment to beating the market, Lyttleton is one of the few to consistently deliver on his promise, as highlighted by Absolute Alpha’s performance.

Since launch in May 2005, the fund has climbed upwards of 50% against just a 10% rise for the FTSE All Share.

“I am of the view anyone can beat the market over just one year, because you can get lucky and pick the right stocks,” Lyttleton says. “But to beat the market on a three, five, 10-year view – you have to have something more.”

“You need the ability to understand what is going on in the world, to understand stock market cycles and have the skill set to adjust portfolios as required.

“It can be a very difficult thing to do. It was tough in February or March this year to buy a lot of bombed-out stuff, which had valuations aligned to a complete collapse in the financial system.

But at the same time, it is often quite hard to sell things your investors think are the best things since sliced bread. See tech stocks in 2000.”

While his long-only funds were not immune from the severe market sell-off, Lyttleton’s absolute return product also saw brief downward periods. “There was never a point when we were down 5% in a month,” he says. “If that did happen people would be right to question what we were doing. But even in September and October last year it was not that bad.

“The fund positioning was obviously not appropriate for the market and for what was going on in the world, which was a pretty ugly place. We beat ourselves up because we were not set up correctly before the fall of Lehman Brothers. We were surprised about the speed of the oil price collapse and the fall-off in the level of activity. That hurt us, but as I say, hindsight is a wonderful thing.

“But to our investors, we explained what was going on, we restructured the portfolio, and we have done a lot better since then.

“We did not see many investors panicking and selling out of the fund. Actually we saw almost no investor redemptions. I think we have repaid that by bringing the fund back up above its high watermark.”

Absolute Alpha started the year at about net zero and modestly moved long and short over the first couple of months. However, Lyttleton and co-manager Nick Osborne took the portfolio 15% long in a couple of days during March.

“The market was looking ridiculous,” Lyttleton says. “But, saying that, we bought all the wrong shares. We bought lots of defensive things where we thought there was very little downside and some quite nice upside. We should have bought all the trash and rubbish, which has quadrupled.

“But this is what we are about. We like protecting the downside. So we bought some of these things that have done okay but have not set the world on fire.”

Despite the plethora of ‘absolute return’ products now entering the retail market, as one of the pioneers in this space, Lyttleton says he feels no added pressure to perform in this increasingly competitive world.

“We have been trying to educate the market place about absolute returns for quite a long time,” he says. “It probably came down to us because we launched significantly earlier than most of these other vehicles.

“All I say to people is: make sure you understand the product you are investing in. Understand which scenarios will do well and which will do badly, and what returns you can expect.

“You saw last year there were a number of absolute returns funds which were down 10% or 20%. They may be up 40% this year, so the numbers look fine, but so is the stock market. As an investor, you have got to ask yourself: what do I want?”

While Lyttleton admits he has no strong views about how the UK and global economic recovery will turn out, he does believe in continued market growth.

“I do not think investors have missed it,” he says. “I think there is more to go for. I think the market will be volatile, but I think we will see a time over the next couple of years when the market will be 20% higher than it is today.

“I know we are greedy because we have just had 45% in six months, but this is backwards-looking. We only look forwards.

“I have more of my money in Absolute Alpha than the long-only funds, just so I do not have to think about it and can just let it compound up over time. Should I have market-timed and taken some of it out of Absolute Alpha and put it into Dynamic in March? Of course I should.

Did I actually do it? No. I was not worrying about myself; I was trying to run the bloody portfolios.

“I would tell people to put some of their money to work today and keep some powder dry, just in case the market gets spooked by a couple of bad bits of economic data, which is very possible.”

After 10 years at the helm of the UK fund, does Lyttleton have enough fire in his belly to continue for another decade?

“I still have the passion,” he adds. “I do not want to manage people; I cannot imagine doing that job. I do not want to be a manager, I want to be a fund manager.

“That is what I am good at. Do not ask me to go and look after 20 people and their pay reviews and working conditions. I have got no interest. I will be a fund manager and not a people manager.”