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May 22, 2012 at 08:00 PM
Three simple questions are all it takes when evaluating money managers, yet Rupal Bhansali says they’re three questions too often overlooked by advisors and clients alike. In the (refreshingly) candid and direct style for which she is known, Bhansali, senior vice president and chief investment officer of international equities for Ariel Investments, wants to clue us in, and we’re more than happy to listen.
For those who might be tempted to dismiss Bhansali as just another vendor with a “system,” consider that in 2006, she noticed the financial sector was taking on risk that she didn’t feel was congruent with potential return, so she started to sell.
“As a consequence, we actually underperformed in 2007 because we started selling out of our cyclical exposure as well,” she says. But the textbook response, which many managers would now like to claim, has led to significant outperformance since. No one-trick pony is this; outperformance during times of stress (and calm) is a theme throughout Bhansali’s career.
Born and raised in Bombay, India—her name for the city, not ours; we won’t quibble—she speaks several languages, including Hindi. Bhansali earned a Bachelor of Commerce in accounting and finance and a Master of Commerce in international finance and banking from that city’s university, as well as an MBA in finance from the University of Rochester.
She knows a little bit about risk versus return, too, having worked for Soros Fund Management (yes, that Soros).
“What’s interesting is that my very first job actually ended up being on the sell side,” she recounts. “In hindsight it was the best thing that happened to me because I was able to observe the investment disciplines and philosophies of many of my clients.”
The time was 1993, when another recession was just underway. Her trial by fire was undoubtedly a plus in dealing with subsequent downturns.
“Also there’s the fact that I covered both emerging and domestic markets; not many people have covered both. More people go from covering developing markets to emerging markets, but having worked for George Soros, I have the opposite. I think it is very useful because we are truly in a globalized world and much more interconnected marketplace than ever before.”
An example of the type of situation of which you might not have heard, but of which Bhansali routinely encounters, is the recent financial crisis that occurred in Kuwait.
“It’s one that took a lot of people in developed markets by surprise, but we had a good position for that because of our unusual experience.”
She joined Ariel after spending 10 years with MacKay Shields, where she was senior managing director, portfolio manager and head of international equities. Her performance and asset flows in turning around an underperforming fund (which eventually received five stars from Morningstar) is what got Chicago-based Ariel’s attention.
“Ariel Investments has a philosophy similar to mine,” she says. “We are both independent thinkers. The difference is that I fish for opportunities in the international and global markets in an all-cap strategy. Ariel has historically been focused on domestic strategies, with particular expertise in small caps. This complements the entire lineup; as people are looking for more choice, we wanted to give them that choice.”
“Fish for opportunity” is, of course, another name for finding alpha, and in this regard her worldly, and contrarian, view is an asset.
“We recognized almost a decade ago that oil prices were going to be higher for longer. Now, many people would jump at the notion and say ‘Gee, let’s go and buy some oil stocks.’ What makes our research and investment philosophy different is that we believe not just in maximizing return but in making sure that we don’t take too much risk in doing so. If you’re going to directly buy oil companies, you expose yourself to a lot of risk from the volatile business models and business cycles.”
Knowing that oil prices would be higher for longer, she decided the best risk-adjusted way to participate was to own utility companies that were not driven by oil but by something like nuclear or hydro. If oil prices go up because of higher fuel costs, their costs will not go up, but they could take advantage of the higher prices and profits. In fact, she notes, utilities in Europe over the last decade have been one of the best performing sectors.
