Wrestling with hedges

So now I’m three weeks into my tour and two suits down.

This time under more dramatic circumstances. Last Thursday I flew back from our roundtable event in Belfast and took a pre-booked taxi home from Heathrow. About 200 metres from junction 16 of the M4 my driver fell asleep (allegedly) while travelling at 90mph. We exited stage left through a fence and got acquainted with the English countryside at close quarters and high speed.

I was bracing for a nasty impact, but fortunately a patch of particularly thick vegetation slowed us down and we finished buried in bushes at a 45-degree angle. All I remember thinking was a keen sense of impending loss: I would never know the final terms of the UK leaving the EU!

Needless to say, the Swindon taxi firm hasn’t contacted me to see if I was ok, nor have they refunded the upfront fare. I did get an email welcoming me home and thanking me for using their services though. So there’s that. Also, I got a ride home in a police car, which was a childish delight. Although my wife Tracey was worried about what our neighbours would think. The vicar lives next door, you see.

Our Ditch the Models roundtable presentations were all about dealing with new risks in the age of e-commerce and whether business models were keeping up by having an appropriate “digital strategy”. But what is a digital strategy? Many think it’s solely enhancing an online experience through website and apps or the use of more automation to drive up margins. My botched taxi ride home highlights how one firm’s digital strategy clearly doesn’t work in all scenarios, but also how such blackspots in fact worsen the customer experience. Although in my case nearly wiping me out would have taken some doing to smooth over.

In May last year I visited 14 companies in the US and was struck by the fact they all talked about their digital strategy. What this boiled down to was dealing with the threat of disintermediation: as pricing is now so visible to consumers, companies have to be smarter in identifying exactly what it is their customers value.

This of course includes a more exciting and useful digital experience, but it increasingly means making changes in the real world too. Making more “analogue” solutions, if you will. Home Depot boosting the number of skilled staff in its stores, Discover Financial guaranteeing that calls are answered by a real live person in the US and US Bancorp investing in its branches after realising that millennials prefer to deal with real people in financial services.

So chatbots, automated tills and staffless stores may seem exciting to the bean counters in their drive to increase margins, but customers seem to be voting with their feet (or ears) and looking for quality service or criteria they value over and above price. This should be good news for financial advisers too!

US companies have woken up to this threat of disintermediation – call it the Amazon threat if you like – and are fighting back. I believe many companies in the UK have a long way to go. Business models have to change and change fast. Management teams need to be more innovative and sympathetic to customer needs. Yes, investment needs to be made in technology, but companies mustn’t forget that repeat customers and customer recommendations are still the cheapest source of growth.

Suffice to say a strong digital strategy is high up the list of key criteria we look at when analysing our companies. Just another case of understanding the need to constantly evolve an investment process – this is not style drift!

Meanwhile, I’m all ok after my encounter with a taxi driver’s style drift, so have no fear. Speaking of which, last Wednesday we increased our Rathbone Multi-Asset Portfolio Funds’ hedge on the dollar (following the Brady amendment to the Brexit bill) just before I was driven through one. Hopefully our derivative hedge will do as well protecting the portfolio from a careering pound as the (now worse for wear) physical one did keeping me from a more sudden end.

Stay safe out there everyone!