Written by Sheldon MacDonald, CIO at Marlborough
With the Euros done and dusted for another four years, football fans are already turning their attention to the new domestic season. For many this means plunging back into the wonderful world of fantasy leagues.
The parallels between picking a title-winning team and assembling a successful investment portfolio have been highlighted on numerous occasions. Yet many investors continue to overlook some of the fundamental lessons.
Perhaps the most significant of all is around budgeting. Just as no fantasy football manager has a war-chest big enough to buy the top-rated stars in every position, costs are a major consideration in portfolio construction.
The easiest way to moderate spending in a multi-asset environment is to use only passive funds – that is, investment vehicles that track market indexes, certain market segments or other benchmarks. But if you believe there’s still an important role for active management – where a fund manager can choose investments with a view to outperforming those benchmarks – then you need to find the right balance between the two approaches.
With that ideal in mind, let’s look at the results of last season’s Fantasy Premier League (FPL)[1] – the world’s most popular fantasy football game. What can they tell us about fund selection in general and the active-versus-passive debate in particular?
Defence
On the whole, the statistics show it’s harder for defensive players to rack up a sizeable FPL points total. Just three of the 23 stars who scored more than 150 points during the 2023-2024 campaign were defenders, and only one was a goalkeeper.
This is largely because these players have a very specific job to do. Apart from a few memorable instances – say, when a keeper sprints up the pitch to score off a last-gasp corner kick – it doesn’t really make sense for them to stray too far from their own goal line.
In a portfolio, similarly, you need protection and a base from which to build an attack. This task falls principally to bonds. It’s essential for most investors to have exposure to fixed income – but relying on it to drive positive returns is unlikely to be an optimum strategy over the long term.
Everton’s Jordan Pickford was last season’s top keeper in the FPL – not because he recorded multiple clean sheets but because he blocked so many shots. Above all, good bond investments should be able to repel the metaphorical pile-drivers, daisy-cutters, chips and volleys – in the shape of inflation, politics, unemployment and so on – launched at them.
Midfield
We next come to the engine room of the team. Three of last season’s top four FPL performers – and five of the top seven – were midfielders.
Midfielders can be seen as akin to the best actively managed equity funds. They’re able to score points in both attack and defence. Active funds that can outperform when markets are rallying and also provide a degree of protection in tough times should push you up the table.
Such funds don’t have to cost a fortune. There are some real gems on offer in a competitive marketplace. But you have to be eagle-eyed and ready to snap them up at the right time.
Remarkably, even the cash-rich beautiful game can still throw up a relative bargain. Chelsea paid just £5 million for Cole Palmer, 2023-2024’s runaway top performer in the FPL, making him the best-value player ever. In both cases – investment and football – it pays to have a well-resourced, experienced scouting team that’s capable of spotting opportunities others might miss.
Attack
Traditionally, it’s forwards who win matches and grab headlines. Messi, Ronaldo, Mbappé – the glamour is usually found up front. It therefore seems reasonable to suppose strikers would dominate the higher reaches of the FPL’s rankings.
In fact, only two of the seven players who amassed more than 200 points last season were out-and-out attackers. More widely, just half a dozen forwards broke the 150-point barrier.
Maybe the closest investment comparison here is the array of “fad” funds that aim to tap into the latest themes. It’s true that some can perform well and deliver handsomely for a portfolio, but they should be used judiciously and handled with care.
Like their football counterparts, these funds can be expensive, temperamental and prone to mid-season slumps in form. Overall, there’s a good chance they might fail to live up to the hype.
The best of both worlds: combining active and passive
There are plenty of studies pointing to the areas in which active managers are more likely to outperform. The findings back up what you might intuitively expect: smaller, less researched markets give more scope for identifying mispriced securities.
Yet there’s another layer to this kind of analysis which is often forgotten. Beyond the likelihood of outperformance, what’s the scale of the potential outperformance of the active managers in a portfolio?
There are two nuances to this question. As well as pinpointing the sectors in which these managers can truly make a difference, you need to grasp whether active funds are really generating active returns or are simply closet index trackers.
Ultimately, in fantasy football – and, indeed, in real football – every best XI features a mix of stars and what Eric Cantona famously called “water-carriers”. The trick lies in ensuring that the former deserve their billing and that the latter are genuinely workhorse-like in their dependability.
In the sphere of investment, too, this sort of blend can be a ticket to success. As the debate rumbles on, understanding where active funds are most likely to add performance and where passive funds are most likely to add value remains one of the key challenges of investing.
