It is generally accepted that 2020 saw changes in the way we use technology that are likely to persist even after the pandemic ends. Many changes to society and markets already appear self-evident today, and developing a full understanding of the implications will be important for active managers over the years to come. The recent Christmas break provided us with a chance to ponder more introspectively over the impact these changes may have on the investment management industry itself. 
Much has been written on how society will change following the pandemic and there are several examples of interesting shifts in consumer trends. My favourite example – albeit admittedly very niche – has been the explosion of interest in the 1,500-year-old game of chess since the pandemic. Despite the success of The Queen’s Gambit on Netflix, who would have thought the game would become one of the fastest-growing spectator sports on video streaming services such as Twitch.
Investment management has an even longer history; its roots go back 4,000 years to ancient Mesopotamia, a civilisation which did much for the development of global finance generally. Not only was the ancient civilisation responsible for the first known currency in the form of the Mesopotamian shekel, but there is also evidence it had a functioning secondary loan market backed by legal guarantees and property rights.
The first formal exchange, however, did not exist until the early 17th century in Amsterdam, when it was established by the Dutch East India Company to raise capital to fund its voyages east to trade in exotic spices and other materials. This opened up share ownership much more widely in society at the time, and was an ingenious way to source funding for considerably risky ventures. The exchange served as a means to spread the cost of funding throughout society, such that the risk was manageable and the potential rewards could be shared accordingly.
The profession has of course progressed somewhat since then, maturing greatly through the 20th century as a new regulatory framework developed after the Great Depression. The passage of the Securities Act (1933) and Securities Exchange Act (1934) greatly improved transparency in the US financial system, requiring companies to keep investors well informed at the initial listing stage, via a detailed prospectus, and subsequently through time, with standardised forms such as the 10-K and 10-Q. This new level of disclosure paved the way for more sophisticated forms of investment analysis, and enabled pioneers such as Benjamin Graham and Harry Markowitz to develop more precise mathematical understandings of concepts such as value and diversification.
Although the use of such techniques greatly helps investors today, the experience of the pandemic has been a stark reminder that mathematics and volatility numbers do not always accurately account for all investment risks. Tail risk or so-called “black swan” events such as the pandemic are notoriously hard to incorporate in models, and when they occur, investors are much more focussed on the risk of permanent capital loss rather than any statistical measures of historic price dispersion. A key pillar of our philosophy at Momentum is exceptional client service; our team are acutely aware that investing is a journey, and helping clients to remain invested through times of extreme uncertainty is often the most valuable service advisors can provide for their clients.
Another important issue has been the importance of sustainability in investing. During an international crisis such as this, investors are increasingly thinking about social issues as well as returns, and pressure on boards is increasing through greater numbers of successful shareholder resolutions on ESG matters. The most progressive companies are reacting to this demand, and are mindful of the wellbeing of a broader range of stakeholders than they have been in the past. This is an area where active managers have been ahead of the curve, naturally being more engaged with corporate boards than passive investors that narrowly follow indices.
A final word should be said on the impact of technological innovation generally, as the investment management industry has been operating at the forefront of areas such as natural language processing within AI. The amount of data available today means that investors are constantly looking for an edge over peers through new developments in technology, and increasingly sophisticated computer-driven systematic strategies are becoming more popular. This is a trend we have already embraced at Momentum, blending systematic and traditional strategies to optimise performance for our clients over the long term.
Throughout all this change however the focus remains on the fundamentals of the underlying companies, and how they are valued by the market. New technology will continue to help us in this regard, but does not change the core principles which have underpinned our profession throughout its deep and rich history.
Robert White is senior investment analyst at Momentum Global Investment Management. The views expressed above are his own and should not be taken as investment advice.