L-R: Joel Supra, Seb Bajada, Audrey Lee, and Franklin Lou
Four UWA students have placed first in the Citi Global Markets Challenge (GMC); what can these young investors tell us about global markets and coming first?
Sacrificing sleep and studies, Audrey Yee, Franklin Lou, Joel Supra, and Seb Bajada spent the last month competing in an international sales and trading competition.
The team – ‘SAF Capital’ – is the third UWA contingent to take home top prize in the annual challenge.
The GMC requires teams to construct a $500 million portfolio across five asset classes: equities, fixed income, foreign exchange, commodities, and cash.
Participants must also outperform a benchmark index fund set by competition organisers.
While winning teams usually spend four to five weeks on their slide decks, Joel joined just twelve days before the first submission deadline – at which point the team had only consolidated about three of their final fifteen positions.
“I got a message at midnight one day,” he said.
“I was pretty hesitant to join and I kind of just got conscripted by a friend of mine.”
Nonetheless, their success is a testament to their commitment.
How did they allocate their portfolio?
The team took a top-down approach.
“You form an opinion of the world, and make allocations based on that,” Seb said.
They researched regions and macro themes, used the findings to frame their world view, identified sectors they felt would outperform, then looked into specific assets.
SAF Capital’s decisions were driven by four macro themes.
These included COVID-19, the strength of emerging markets, geopolitical trade tensions, and ‘inefficient rollouts’ – the view that markets at the time had been pricing in near-perfection of vaccine rollouts, and neglecting the risks.
“We liked emerging markets quite a lot,” Seb said.
“We thought they played coronavirus quite well last year and were able to exploit their economies’ openness much more than a nation like the US.”
A smaller driver was the geopolitical trade environment, centred around China being unfair in the world trade environment.
SAF Capital’s thesis was also underpinned by the reflation narrative.
“Whilst we didn’t have expectations of inflation playing out in real terms, we thought there’d be enough flow from investors trying to hedge out financial assets, which have returns which would be eroded by inflation,” Joel said.
“We very much longed commodities.”
That position is generally seen as an effective hedge against inflation.
Given the constant fluctuation of markets, Pelican asked whether the team made any major changes in their trades over the competition.
“The time between rounds was not enough for us to get rid of a trade and think of a completely new trade,” Franklin said.
“Even if we had a trade we weren’t certain about, we’d just research and buff up the arguments more.”
“The nature of macro investing is that there’s enough information on both sides that you can make a solid argument, regardless of what trade you’re in.”
The team drew on prominent figures such as Lyn Alden, Stanley Druckenmiller, and Nancy Davis, but cautioned against simply copying their trades.
“You watch these people not for their ideas, but more for how they approach structuring their portfolio,” Seb said.
“If you go in and just copy everything, you’re going to find it really hard to actually understand why they’re doing what they’re doing, and be able to back that up in question time.”
SAF Capital also looked at disparities between reports by analysts and mainstream media.
From often contradictory views, they formed an independent opinion of what they thought would materialise.
How did they delegate tasks?
The team were quick to identify each other’s strengths and specialisations.
“Our team complemented each other pretty well,” Joel said.
“Audrey was very good at slides, she’d do it so quickly and effectively.”
“Joel was by far the best at excel,” Seb said.
“Even if he had to go and learn something he hadn’t done before, he had the ground knowledge to be able to apply it to excel really quickly.”
“He was the derivatives specialist,” Franklin added.
That being said, SAF Capital said specialising too much was a risk.
“If you make each person’s task mutually exclusive, you’re not going to be able to question each other because you don’t have the knowledge for it,” Seb said.
How did they grapple with the unknown?
Hedging against risk is crucial in portfolio management and in the Global Markets Challenge.
“They’re very focused on whether you’ve thought about risk and downside,” Franklin said.
“Eliminating downside is key to doing well in the challenge.”
One instrument the team used was the ‘Quadratic Interest Rate Volatility and Inflation Hedge ETF’ (IVOL).
“It serves to be a hedge for any kind of fixed income position,” Joel explained.
About 80 per cent of it is inflation-protected securities with the remainder being actively managed.
That 20 per cent is what makes the product attractive, but Joel said it was also quite complex.
“If the yield curve steepens, you benefit from that.”
“But it’s also quite esoteric.”
SAF Capital also adopted simpler techniques such as buying put options on oil to hedge out their exposure to oil prices.
“In risk management especially, where you’re allowed to use derivatives, a lot of teams go very complex to try to hedge out a very specific risk in their portfolio,” Seb said.
“But what that does, is that it opens them up to questions about how it affects other parts of their portfolio.”
Echoing last year’s GMC winners, the team asserted simplicity was important.
“A big thing for us was just keeping it as simple as possible,” Seb said.
“The best way to counteract the possibility of getting hard questions was not to have hard trades.”
What were their biggest takeaways from the competition?
Learning about macroeconomics was one of the most valuable elements, according to SAF Capital.
“I learned how complicated our economy is,” Audrey said.
“The more I learned, the less I felt like I knew.”
“I’ve never done a finance competition and wasn’t familiar with making a portfolio at all so it was definitely a steep learning curve.”
They said the competition was valuable in developing knowledge that might otherwise be overlooked.
“Especially at university, you want to try to encourage people to learn about these things,” Joel said.
“People are so comfortable with equities but as soon as you get to fixed income, already there are people who don’t really get it.”
“Equities really are the tip of the iceberg, the thing everyone sees and everyone knows,” Seb added.
“But this competition will force you to go below sea level.”
What did observers think?
Two of the four team members are equity analysts at the UWA Student Managed Investment Fund (SMIF).
The club’s co-president Yousif Al Rikabawi – who was in last year’s winning GMC team – told Pelican he saw much of his former team in SAF Capital.
“They had a very good team dynamic just like ours last year,” he said.
“They really put in the time to understand all their trades and had a holistic view.”
Yousif also added he saw the team utilise their individual strengths very efficiently, and most importantly that they had a lot of fun doing the challenge together.
“They had lots of banter and genuinely enjoyed themselves,” he said.
Were there any funny memories?
The team recalled there were late nights, many of which morphed into mornings.
“People were walking into business school as we were walking out,” Seb said.
One morning, they said there was an amusing moment as Seb was attempting to wake Audrey up.
“I kept trying and she suddenly sits up and starts typing straight away,” Seb recounted.
Audrey said another funny moment was when the team handed in their first slide deck.
“We immediately realised we had a major typo in one of the profit numbers and had to apologise for it in our first presentation,” she said.
What advice do they have for future teams?
Franklin said it was important to find team members who were intellectually curious and dedicated.
“You can outscale anyone in terms of understanding if you just dedicate enough and are willing to learn,” he said.
“I think they (the judges) see it because it’s reflected in the enthusiasm by which you convey your ideas,” Joel added.
Seb said speaking to someone who has done the competition before, and – if possible – someone who has won it before was valuable.
“One of the hardest things is knowing where to go.”
“Asking someone who’s done it before will just make that so much easier.”
In the absence of – what Franklin termed a “slide menace” – like Audrey, the team said it was also worthwhile dedicating some time to mastering powerpoint.
“Not only does information on the slide have to be high quality, it also has to be written well, and presented well,” he said.
Finally, they said rabbit holes – while not good at the start – were very useful when the basics of the portfolio had been laid down.
Where to now for SAF Capital?
“The competition changed my whole outlook on what I want to do,” Seb said.
Initially set on investment banking, he now wants to work as a trader.
Joel always wanted to get into trading but said he would love to be involved in any capacity in markets.
He encouraged students to embrace careers they might not necessarily expect.
“Your first job isn’t everything.”
“Working on one’s skills is invaluable and people see that and take note of that.”
Another competition is not off the cards for the tenacious team, but they are in no rush to take on another challenge.
“We haven’t really discussed it, but one is probably enough,” Seb said.
While they trumped the clock and the odds to take home the trophy, SAF Capital – like their predecessors – are still catching up on sleep.
Words by Millie Muroi
Images courtesy of the UWA Student Managed Investment Fund (SMIF) and the Finance Association of Western Australia (FAWA).