Global equities and the slippery slope of following the herd

Source: Trustnet

What can the sport of ski-jumping teach us about investing? Not a lot, you might imagine, other than the sheer exhilaration of ups and downs or the pain of crashing. In fact, it offers one particularly useful lesson.

There was a time when keeping one’s skis parallel to each other while soaring through the air was considered not only the accepted style but the most effective. As a result, competitors were marked accordingly.

In the mid-1980s, quite by chance, a Swede by the name of Jan Boklöv discovered he could fly much farther if his skis were instead angled away from each other in a V. He was so amazed by the advantage he gained that he decided to use the technique at all times.

For several years, despite consistently outdistancing his rivals, Boklöv didn’t win any titles. He was instead repeatedly punished for his unorthodoxy. What he gained in length was lost in low scores from the judging panel, which continued to cling to the ‘skis in parallel’ ideal.

Eventually, however, the herd fell into line. In the 1988-1989 season, although still penalised for flouting tradition, Boklöv flew far enough to claim the World Cup. Acknowledging its ability to produce more lift, pretty much everyone began to adopt the V method.

By the early 1990s, with every Olympic medallist following Boklöv’s lead, the technique had become the new normal. Ski-jumping was thus revolutionised and the scoring system was changed to accommodate an era-defining shift.

The moral of the story? In every field – whether it’s ski-jumping, investing or any other endeavour we might care to mention – there’s often much to be said for daring to be different.

Looking beyond the big names

In the investment sphere, of course, this takes us into the realm of contrarianism. Yet contrarianism is a word that must be treated with care because it can come with negative connotations.

There’s strictly limited merit, for example, in being contrarian for the sake of it. Choosing B simply because A is all the rage is less a bona fide stock-picking philosophy and more an exercise in knee-jerk defiance.

It may be better to think of contrarianism in terms of suitably informed investment decisions. Ideally, it’s a question of identifying opportunities that escape the wider market’s attention.

This can be among an investor’s greatest and most rewarding pleasures, not least when everyone else belatedly clambers aboard the bandwagon.

But how is it done? In essence, it requires a readiness to look beyond the obvious. There may be no better illustration than the domain of global equities, which happens to be the stomping ground of the fund I co-manage.

Many investors seem to have been conditioned to believe the search for healthy returns need extend little or no further than multi-trillion-dollar technology companies – the so-called ‘Magnificent Seven’ foremost among them. Recently, amid the boom in artificial intelligence (AI), an even narrower lens has been applied in some circles.

Yet 2025 has already shown a reliance on a handful of stocks centred on a single sector, industry or region is rarely prudent. Passive funds now find themselves notably vulnerable to this trap, with enormous exposures to giant businesses whose valuations appear ever more uncomfortably stretched.

So if mega-cap tech titans are investing’s parallel skis – once undeniably dominant but increasingly recognised as perhaps not all they’re cracked up to be – where might we find the equivalent of Boklöv’s V? This brings us to the underappreciated attractions of small-caps.

Enablers versus architects

Wherever in the world they might be, the best smaller companies tend to outperform their larger counterparts over time. This is thanks to their capacity for long-term growth, which is usually fuelled by factors such as adaptability, flexibility and willingness to innovate.

Many of these businesses represent ‘picks-and-shovels investments’. This designation has its origins in the gold rushes of the 19th century, when thousands of prospectors dreamed of unearthing a fortune but the people most likely to get rich were those who sold the equipment necessary for mining.

Take two of our biggest holdings: Mueller Industries, which specialises in copper and copper-alloy manufacturing, and Applied Industrial Technologies, which develops fluid power solutions to maximise machine efficiency. What unites these businesses?

The answer is that they can be thought of as enablers. While they might not be universally known, these are companies that are absolutely vital to the transformation unfolding all around us.

Most investors are much more familiar with what we might call architects. These are the big-name game-changers that hog the headlines and account for the bulk of so many passive funds.

In our experience, enablers’ cumulative returns over the course of many years can easily exceed those of architects. If you want proof, spend a few minutes comparing Apple’s performance with that of some of its most important suppliers since the advent of the iPhone. It’s eye-opening stuff.

It’s true that, like Boklöv, informed small-cap investors may need to be patient. They might have to wait a while before they’re proved right. They could even very occasionally land on their backsides – an occupational hazard in any investment sphere.

Ultimately, though, like Sweden’s most celebrated high-flier, they should have a good chance of emerging as winners.

Simon Wood is co-manager of the IFSL Marlborough Global SmallCap fund. The views expressed above should not be taken as investment advice.