Hazard pay, or why I love to hate my top ten companies

13 May, 2024

One of the most popular shows on the Discovery channel is ‘Deadliest Catch’, a reality series about the perilous voyages of Alaskan crab fishermen in the Bering Sea. The highly prized Alaskan king crabs, which the fishermen compete to catch, can command prices of up to US $90/lb, about twelve times the price of good quality beef. Now in its 18th season, the show follows real crews as they risk life and limb in some of the worst working conditions imaginable – ice cold seas, torrential rain, pounding waves and heavy machinery – in search of a bumper annual haul.

As the show’s title indicates, it is safe to say that Alaskan king crab fishing is one of the most dangerous occupations in the world. It has a fatality rate of 300 per 100,000 per year, about 80 times the US national average in 2022 (3.7 per 100,000), and about six times the average for fishing in general (50.7 deaths per 100,000, or 14 times the US national average).[1] Why on earth would anybody accept such occupational risks?

The answer, of course, is the money: for taking on such dangerous jobs, crab fishermen can command significantly higher pay than less risky jobs that match their qualification levels. For an average crew hand, a two-month season on an Alaskan king crab fishing vessel reportedly pays up to $50,000. This far exceeds what most of the fishermen – who on average have less than college degree levels of education – could earn elsewhere. One study [2] from 2018 compared the hourly wages of the off and on-season jobs of Alaskan crab fishermen, finding that, on average, for every $1 earned in an off-season role, they earned roughly $4 in season as fishermen. In fact, king crab fishing pay correlates so closely with danger that wages typically vary by month – with lower pay in the less dangerous summer season, and surging rates in winter.

This phenomenon, commonly termed ‘hazard pay’, is found across industries, and is intuitive to most people. Yet, many investors seem to have missed the memo.

What can investors learn from Alaskan crab fisherman?

Broadly speaking, investors are trying to earn a return that compensates them – or, ideally, overcompensates them – for the risk they are taking. Evaluating ownership of a company’s shares based purely on the perceived quality of the business, without regard to price, would therefore be illogical; it would be like looking at the risk of a job without asking how much it pays. By the same logic, who would ever take up king crab fishing in Alaska when a nice, warm cashier’s job is far less risky? Looking only through the lens of comfort without regard for compensation for being uncomfortable is not how we think in the real world, and should not be how investors think about their portfolios.

This is exemplified when it comes to how investors view the companies they own. If the top ten holdings in your portfolio give you a warm and fuzzy glow inside, we suggest that this should prompt concern rather than congratulation. Ask yourself why the market should pay you above average returns to own a celebrated outperformer. Surely, the warm and fuzzy glow should be something that you pay for in the form of lower future returns. In the same way, employees should expect to earn less in a warm regional sales office with free doughnuts and coffee than they would on the deck of an Alaskan fishing vessel in mid-December.[3]

If the top ten holdings in your portfolio give you a warm and fuzzy glow inside, we suggest that this should prompt concern rather than congratulation.

'Psychic returns' versus hazard pay

Academic research into this phenomenon has focused on the art world, based on the observation that, in aggregate, art investments yield lower average annual returns than other assets.[4] This had led academics to introduce the term ‘psychic returns’, the implied annualised return that an art owner will forgo to enjoy the benefits of owning fine art and having the pleasure of looking at it over time. It seems logical to us that there should be a cost to owning assets that bestow some kind benefit to investors (e.g. comfort or kudos) – a cost borne in the form of lower returns – compared to less comfortable or palatable alternatives.

By that token, if the top ten companies in your portfolio make you break out in a cold sweat, that may actually be a good sign: there may be a chance – if the price is right – to earn some premium hazard pay for your troubles.[5]

If the top ten holdings in your portfolio make you break out in a cold sweat, that may actually be a good sign.

For example, market ambivalence or aversion to a company or sector can sometimes translate into a significant discount to the intrinsic value of the business –what its long-term cashflows are truly worth. The chance to buy companies at this discount is generally what creates opportunity for long-term outperformance, and it is this opportunity that we as value investors search for every day. In fact, investing is likely an even better place to earn hazard pay than on a king crab fishing boat. Whilst fishermen cannot diversify away their risk of life and limb as they seek higher pay, investors can hold several companies at a time: each position should individually provide ample compensation for their risks while diversifying our worst-case exposure, and retaining the attractive payoff opportunities.[6]

Assessing the hazard pay premium

Of course, by the same token, investors should not fall over themselves to take incremental units of risk for their own sake. After all, leaving your office job to work as a crab fisherman for only an extra US $1 a day is probably an unwise decision. What is important to appreciate, however, is that there is a dividing line between job risk and job pay – or, in the markets, company quality and company price. Thinking carefully about being sufficiently well paid for the risk you are taking is the key. A Maserati is clearly a higher quality car than a Vauxhall, yet a Maserati at £50m is clearly a worse deal than a Vauxhall at £10.

So, the next time that you look at your portfolio, stop and think: does this company and industry make me feel safe, secure, and rather clever? Or does it bring feelings of discomfort, insecurity and a fear of looking stupid in front of your peers? If the former, why should you be getting paid more to own it? If the latter, it is likely that many other investors are quite happy to let you earn the hazard pay premium that can come from accepting the discomfort that they won’t.

Sources:

[1] Finance and insurance, you’ll be pleased to know, is one of the lowest risk professions, with a fatality of just 0.2 per 100,000 workers per year (source: US Bureau of Labor Statistics, Census of Fatal Occupational Injuries, 2022)

[2] Lavetti, Kurt “The Estimation of Compensating Wage Differentials: Lessons from the Deadliest Catch”, Journal of Business & Economic Statistics, Vol. 38, No. 1, (Jan. 2020)

[3] Adjusting to equalize for qualification-equivalent roles

[4] Atukeren, E. and Seçkin, A., 2007. “On The Valuation of Psychic Returns To Art Market Investments”. Economics Bulletin, 26(5), pp.1-12.

[5] It was this insight that made the career of junk bond king Michael Milken, and the modern high yield market. He observed that investors that shunned sub-investment grade bonds at any price were underperforming the lower-rated debt. While there were more defaults in junk bonds, the lower initial prices overall more than compensated for the increased risk.

[6] Not to mention the much more comfortable working environment that even the most hardened value investors endure relative to the high seas of Alaska

[7] Adobe Stock Image, sourced 13.05.2024

Key Information
No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment. Past performance is not a guide to future results. The prices of investments and income from them may fall as well as rise and an investor’s investment is subject to potential loss, in whole or in part. Forecasts and estimates are based upon subjective assumptions about circumstances and events that may not yet have taken place and may never do so. The statements and opinions expressed in this article are those of the author as of the date of publication, and do not necessarily represent the view of Redwheel. This article does not constitute investment advice and the information shown is for illustrative purposes only.

In case you missed it

Emerging and Frontier Markets

The ‘Fab 4’ become the ‘FOMO 3’

The Redwheel Emerging and Frontier Markets team explores the concentration challenge facing investors today and maps out under‑owned countries, sectors and themes that the team believes offer a richer blend of structural growth and genuine diversification.

27 July, 2026 | 01:48pm

UK Value & income

When it rhymes it pours

Shaul Rosten, Analyst with the Redwheel Value and Income team looks at the striking similarities between today’s market exuberance and the dotcom era, highlighting stretched valuations, record IPO activity and the dominance of the technology sector.

20 July, 2026 | 07:58pm

UK Value & income

Two beautiful games

As England’s World Cup campaign unfolds, the tournament provides a vivid reminder that sensible bets are grounded in probabilities. Supporters know that backing long-shot teams is unlikely to be rewarded, while favouring stronger sides with clear track records is more prudent. In his latest blog, Shaul Rosten of Redwheel's Value & Income team examines how value investing adopts a similar stance, focusing on quality businesses at attractive valuations, rather than richly priced growth narratives with low odds of delivery.

6 July, 2026 | 07:29pm

Disclaimer

Redwheel ® and Ecofin ® are registered trademarks of RWC Partners Limited (“RWC”). The term “Redwheel” may include any one or more Redwheel branded regulated entities including RWC Asset Management LLP, which is authorised and regulated by the UK Financial Conduct Authority and the US Securities and Exchange Commission (“SEC”); RWC Asset Advisors (US) LLC, which is registered with the SEC; RWC Singapore (Pte) Limited, which is licensed as a Licensed Fund Management Company by the Monetary Authority of Singapore; Redwheel Australia Pty Ltd is an Australian Financial Services Licensee with the Australian Securities and Investment Commission; and Redwheel Europe Fondsmæglerselskab A/S which is regulated by the Danish Financial Supervisory Authority.

Redwheel may act as investment manager or adviser, or otherwise provide services, to more than one product pursuing a similar investment strategy or focus to the product detailed in this document. Redwheel and RWC (together “Redwheel Group”) seeks to minimise any conflicts of interest, and endeavours to act at all times in accordance with its legal and regulatory obligations as well as its own policies and codes of conduct.

This document is directed only at professional, institutional, wholesale or qualified investors. The services provided by Redwheel are available only to such persons. It is not intended for distribution to and should not be relied on by any person who would qualify as a retail or individual investor in any jurisdiction or for distribution to, or use by, any person or entity in any jurisdiction where such distribution or use would be contrary to local law or regulation.

This document has been prepared for general information purposes only and has not been delivered for registration in any jurisdiction nor has its content been reviewed or approved by any regulatory authority in any jurisdiction.

The information contained herein does not constitute: (i) a binding legal agreement; (ii) legal, regulatory, tax, accounting or other advice; (iii) an offer, recommendation or solicitation to buy or sell shares in any fund, security, commodity, financial instrument or derivative linked to, or otherwise included in a portfolio managed or advised by Redwheel; or (iv) an offer to enter into any other transaction whatsoever (each a “Transaction”). Redwheel Group bears no responsibility for your investment research and/or investment decisions and you should consult your own lawyer, accountant, tax adviser or other professional adviser before entering into any Transaction. No representations and/or warranties are made that the information contained herein is either up to date and/or accurate and is not intended to be used or relied upon by any counterparty, investor or any other third party.

Redwheel Group uses information from third party vendors, such as statistical and other data, that it believes to be reliable. However, the accuracy of this data, which may be used to calculate results or otherwise compile data that finds its way over time into Redwheel Group research data stored on its systems, is not guaranteed. If such information is not accurate, some of the conclusions reached or statements made may be adversely affected. Any opinion expressed herein, which may be subjective in nature, may not be shared by all directors, officers, employees, or representatives of Group and may be subject to change without notice. Redwheel Group is not liable for any decisions made or actions or inactions taken by you or others based on the contents of this document and neither Redwheel Group nor any of its directors, officers, employees, or representatives (including affiliates) accepts any liability whatsoever for any errors and/or omissions or for any direct, indirect, special, incidental, or consequential loss, damages, or expenses of any kind howsoever arising from the use of, or reliance on, any information contained herein.

Information contained in this document should not be viewed as indicative of future results. Past performance of any Transaction is not indicative of future results. The value of investments can go down as well as up. Certain assumptions and forward looking statements may have been made either for modelling purposes, to simplify the presentation and/or calculation of any projections or estimates contained herein and Redwheel Group does not represent that that any such assumptions or statements will reflect actual future events or that all assumptions have been considered or stated. There can be no assurance that estimated returns or projections will be realised or that actual returns or performance results will not materially differ from those estimated herein. Some of the information contained in this document may be aggregated data of Transactions executed by Redwheel that has been compiled so as not to identify the underlying Transactions of any particular customer.

No representations or warranties of any kind are intended or should be inferred with respect to the economic return from, or the tax consequences of, an investment in a Redwheel-managed fund.

This document expresses no views as to the suitability or appropriateness of the fund or any other investments described herein to the individual circumstances of any recipient.

The information transmitted is intended only for the person or entity to which it has been given and may contain confidential and/or privileged material. In accepting receipt of the information transmitted you agree that you and/or your affiliates, partners, directors, officers and employees, as applicable, will keep all information strictly confidential. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information is prohibited. Any distribution or reproduction of this document is not authorised and is prohibited without the express written consent of Redwheel Group.

Funds managed by Redwheel are not, and will not be, registered under the Securities Act of 1933 (the “Securities Act”) and are not available for purchase by US persons (as defined in Regulation S under the Securities Act) except to persons who are “qualified purchasers” (as defined in the Investment Company Act of 1940) and “accredited investors” (as defined in Rule 501(a) under the Securities Act).

This document does not constitute an offer to sell, purchase, subscribe for or otherwise invest in units or shares of any fund managed by Redwheel. Any offering is made only pursuant to the relevant offering document and the relevant subscription application. Prospective investors should review the offering memorandum in its entirety, including the risk factors in the offering memorandum, before making a decision to invest.

AIFMD and Distribution in the European Economic Area (“EEA”)

The Alternative Fund Managers Directive (Directive 2011/61/EU) (“AIFMD”) is a regulatory regime which came into full effect in the EEA on 22 July 2014. RWC Asset Management LLP is an Alternative Investment Fund Manager (an “AIFM”) to certain funds managed by it (each an “AIF”). The AIFM is required to make available to investors certain prescribed information prior to their investment in an AIF. The majority of the prescribed information is contained in the latest Offering Document of the AIF. The remainder of the prescribed information is contained in the relevant AIF’s annual report and accounts. All of the information is provided in accordance with the AIFMD.

In relation to each member state of the EEA (each a “Member State”), this document may only be distributed and shares in a Redwheel fund (“Shares”) may only be offered and placed to the extent that (a) the relevant Redwheel fund is permitted to be marketed to professional investors in accordance with the AIFMD (as implemented into the local law/regulation of the relevant Member State); or (b) this document may otherwise be lawfully distributed and the Shares may lawfully be offered or placed in that Member State (including at the initiative of the investor).

Information Required for Offering in Switzerland of Foreign Collective Investment Schemes to Qualified Investors within the meaning of Article 10 CISA.

This is an advertising document.

The representative and paying agent of the Redwheel-managed funds in Switzerland (the “Representative in Switzerland”) FIRST INDEPENDENT FUND SERVICES LTD, Feldeggstrasse 12, CH-8008 Zurich. Swiss Paying Agent: Helvetische Bank AG, Seefeldstrasse 215, CH-8008 Zurich. In respect of the units of the Redwheel-managed funds offered in Switzerland, the place of performance is at the registered office of the Swiss Representative. The place of jurisdiction is at the registered office of the Swiss Representative or at the registered office or place of residence of the investor.

No investment strategy or risk management technique can guarantee returns or eliminate risks in any market environment.The term “RWC” may include any one or more RWC branded entities including RWC Partners Limited and RWC Asset Management LLP, each of which is authorised and regulated by the UK Financial Conduct Authority and, in the case of RWC Asset Management LLP, the US Securities and Exchange Commission; RWC Asset Advisors (US) LLC, which is registered with the US Securities and Exchange Commission; and RWC Singapore (Pte) Limited, which is licensed as a Licensed Fund Management Company by the Monetary Authority of Singapore.RWC may act as investment manager or adviser, or otherwise provide services, to more than one product pursuing a similar investment strategy or focus to the product detailed in this audio. RWC seeks to minimise any conflicts of interest, and endeavours to act at all times in accordance with its legal and regulatory obligations as well as its own policies and codes of conduct.This audio is directed only at professional, institutional, wholesale or qualified investors. The services provided by RWC are available only to such persons. It is not intended for distribution to and should not be relied on by any person who would qualify as a retail or individual investor in any jurisdiction or for distribution to, or use by, any person or entity in any jurisdiction where such distribution or use would be contrary to local law or regulation.This audio has been prepared for general information purposes only and has not been delivered for registration in any jurisdiction nor has its content been reviewed or approved by any regulatory authority in any jurisdiction. The information contained herein does not constitute: (i) a binding legal agreement; (ii) legal, regulatory, tax, accounting or other advice; (iii) an offer, recommendation or solicitation to buy or sell shares in any fund, security, commodity, financial instrument or derivative linked to, or otherwise included in a portfolio managed or advised by RWC; or(iv) an offer to enter into any other transaction whatsoever (each a “Transaction”). No representations and/or warranties are made that the information contained herein is either up to date and/or accurate and is not intended to be used or relied upon by any counterparty, investor or any other third party.RWC uses information from third party vendors, such as statistical and other data, that it believes to be reliable. However, the accuracy of this data, which may be used to calculate results or otherwise compile data that finds its way over time into RWC research data stored on its systems, is not guaranteed. If such information is not accurate, some of the conclusions reached or statements made may be adversely affected. RWC bears no responsibility for your investment research and/or investment decisions and you should consult your own lawyer, accountant, tax adviser or other professional adviser before entering into any Transaction. Any opinion expressed herein, which may be subjective in nature, may not be shared by all directors, officers, employees, or representatives of RWC and may be subject to change without notice. RWC is not liable for any decisions made or actions or in actions taken by you or others based on the contents of this audio and neither RWC nor any of its directors, officers, employees, or representatives (including affiliates) accepts any liability whatsoever for any errors and/or omissions or for any direct, indirect, special, incidental, or consequential loss, damages, or expenses of any kind howsoever arising from the use of, or reliance on, any information contained herein.Information contained in this audio should not be viewed as indicative of future results. Past performance of any Transaction is not indicative of future results. The value of investments can go down as well as up. Certain assumptions and forward looking statements may have been made either for modelling purposes, to simplify the audio and/or calculation of any projections or estimates contained herein and RWC does not represent that that any such assumptions or statements will reflect actual future events or that all assumptions have been considered or stated. Forward-looking statements are inherently uncertain, and changing factors such as those affecting the markets generally, or those affecting particular industries or issuers, may cause results to differ from those discussed. Accordingly, there can be no assurance that estimated returns or projections will be realised or that actual returns or performance results will not materially differ from those estimated herein. Some of the information contained in this audio may be aggregated data of Transactions executed by RWC that has been compiled so as not to identify the underlying Transactions of any particular customer.The information transmitted is intended only for the person or entity to which it has been given and may contain confidential and/or privileged material. In accepting receipt of the information transmitted you agree that you and/or your affiliates, partners, directors, officers and employees, as applicable, will keep all information strictly confidential. Any review, retransmission, dissemination or other use of, or taking of any action in reliance upon, this information is prohibited. The information contained herein is confidential and is intended for the exclusive use of the intended recipient(s) to which this audio has been provided. Any distribution or reproduction of this audio is not authorised and is prohibited without the express written consent of RWC or any of its affiliates.Changes in rates of exchange may cause the value of such investments to fluctuate. An investor may not be able to get back the amount invested and the loss on realisation may be very high and could result in a substantial or complete loss of the investment. In addition, an investor who realises their investment in a RWC-managed fund after a short period may not realise the amount originally invested as a result of charges made on the issue and/or redemption of such investment. The value of such interests for the purposes of purchases may differ from their value for the purpose of redemptions. No representations or warranties of any kind are intended or should be inferred with respect to the economic return from, or the tax consequences of, an investment in a RWC-managed fund. Current tax levels and reliefs may change. Depending on individual circumstances, this may affect investment returns. Nothing in this document constitutes advice on the merits of buying or selling a particular investment. This audio expresses no views as to the suitability or appropriateness of the fund or any other investments described herein to the individual circumstances of any recipient.AIFMD and Distribution in the European Economic Area (“EEA”)The Alternative Fund Managers Directive (Directive 2011/61/EU)(“AIFMD”) is a regulatory regime which came into full effect in the EEA on 22 July 2014. RWC Asset Management LLP is an Alternative Investment Fund Manager (an “AIFM”) to certain funds managed by it (each an “AIF”). The AIFM is required to make available to investors certain prescribed information prior to their investment in an AIF. The majority of the prescribed information is contained in the latest Offering Document of the AIF. The remainder of the prescribed information is contained in the relevant AIF’s annual report and accounts. All of the information is provided in accordance with the AIFMD.In relation to each member state of the EEA (each a “Member State”),this document may only be distributed and shares in a RWC fund(“Shares”) may only be offered and placed to the extent that (a) the relevant RWC fund is permitted to be marketed to professional investors in accordance with the AIFMD (as implemented into the local law/regulation of the relevant Member State); or (b) this audio may otherwise be lawfully distributed and the Shares may lawfully offered or placed in that Member State (including at the initiative of the investor).Information Required for Distribution of Foreign Collective Investment Schemes to Qualified Investors in SwitzerlandThe representative and paying agent of the RWC-managed funds in Switzerland (the “Representative in Switzerland”) FIRST INDEPENDENT FUND SERVICES LTD, Klausstrasse 33, CH-8008 Zurich. Swiss Paying Agent: Helvetische Bank AG, Seefeldstrasse 215, CH-8008 Zurich. In respect of the units of the RWC-managed funds distributed in Switzerland, the place of performance and jurisdiction is at the registered office of the Representative in Switzerland.