A leading panel of fund buyers reveal their top equity fund picks and their dos and don’ts for fund managers.
We hear from top fixed income fund selectors about the best, and worst, markets for top fund management talent.
A run-down of the alternative funds that have made the grade and are lighting up leading selectors’ buy lists.
Contributions · Scorecard · Ideas Gap · Manager Tables ·
Equities
Fixed Income
Alternatives
The art and science of fund-picking prowess
Freedom of choice is a great thing but it takes skill and often patience to home in on the best fit for your particular project. Fund selectors know this only too well and it’s their discerning eyes that have informed the content of this ezine. We have spoken to some of the top players across Europe to find out who is making it onto their buy lists, and why, in the current environment. From equities, to fixed interest and alternatives, our series of Expert Views across these three asset classes provides a comprehensive spread of recommendations and reveals popular and more idiosyncratic fund choices. Many of these favoured funds are inextricably linked with favoured managers, but what makes a manager stand out from the crowd? Our Fund Manager Scorecards provide the answers by collating a range of must-have qualities suggested by our fund selection experts. The scorecards also list the things they don’t want to see from managers. This ezine shows there are plenty of good managers running lots of great funds but fund analysts still want more from providers. Our Ideas Gap sections within each asset class home in on the areas where selectors would like to see more innovation. Finally, we round up each section with a list of the top-performing managers over five years within key sectors for an indication of just how far making a good choice can get you.
US equity was among the top sectors in terms of attracting investor cash for the second quarter this year, pulling in €4 billion of net inflows. On the flip-side Europe was one of the biggest losers with net outflows of €3.3 billion. So how are fund selectors positioned in relation to these trends? Are they trying to gain an edge in the super-efficient US market or sticking to their guns with long-held European funds? We talk to some of the top names in the fund-buying industry for an insight into the strategies they are using to play these sectors and other regions across the globe. The results are illuminating with some clear winners when it comes to the most popular funds.
For the next five years, we believe value stocks will bounce back, driven by higher interest rates and a return to the mean of the value style. Our favourite managers include Brandes, Cobas and Value Square. Brandes is a US-based value boutique that operates in the deep value market. The Brandes Global Equity fund underperformed the broad market, due to lower exposure in US stocks and the fact that its style was out of favour. Cobas was founded by Francisco García Paramés who finds very cheap stocks in the mining, shipping, energy and automobile sectors and also plays the Brexit theme. His Cobas Selección fund has suffered a lot so far, but we expect a big rebound once investors embrace value stocks again. Value Square is a Belgian value house that runs an international equity strategy called the Value Square Fund Equity World fund. The strategy’s main theme is soft commodity-related stocks and the return of El Niño later this year is likely to favour some of its holdings such as palm oil stocks. Our most recent fund pick was the Cobas Selección fund. We particularly like its stock-picking process, driven by valuation, generation of free cash flow and low debt levels. The Cobas team will talk to employees, ex-employees, clients, industry specialists and suppliers related to any potential holdings to gain a comprehensive picture of the company they want to invest in. The team searches in out-of-favour areas such as shipping.
Expert views
Wim Antoons
Head of asset management
Bank Nagelmackers
More on Wim Antoons’ fund picks
Brandes Global Equity
Value Square Fund Equity World
Cobas Selección
Managers: Brent Fredberg, Ted Kim, Kenneth Little & Brian Matthews Sector: Equity - Global
The Brandes managers target global all-cap companies and focus on uncovering those with potentially attractive value attributes.
Managers: Kris Hermie & Patrick Millecams Sector: Equity - Global
This fund with a bottom-up value approach, driven by the timing of events, value estimates and the impact on the portfolio's diversification.
Managers: Francisco García Paramés Sector: Global Equity Income
This fund is managed by prominent value investor Paramés. The Selección strategy has a minimum exposure of 80% to international equities while up to 40% can be invested in emerging markets.
We have had a strong equity exposure for the past couple of months and even for the past few years. After the peak in January 2018, market sentiment became too stretched on the upside and there was an inevitable correction. The interesting question now is what kind of strategy do you want to invest in if you think equities can regain their footing? Given where we are in the cycle, cyclical exposure makes sense. We have not invested in this trend directly, due to internal restrictions on third parties, together with our tendency to use ETFs or futures instead. However, we are looking closely at energy stocks because these are usually the best equity play during late cycles. The Guinness Global Energy fund could be useful at the moment because it exercises good risk management with a cyclical tilt. The management team are very good. Like many players they struggled from 2014 to 2016 but looking forward this sector is attractively priced. I struggle to go much beyond a mid-term horizon because so much can change. Nevertheless, we are also considering what might happen in the next five years and where the next recession could occur. That said, there is little reason to expect a recession any time soon. The energy sector’s earnings momentum is currently very strong and the earnings growth for energy companies in the S&P 500 is also good. These companies have been able to cut costs and make their margins even stronger and their sensitivity to further increases in the oil price is even better than it was.
Fund selector
Invesco
More on Pierre Bellot's fund picks
Guinness Global Energy
Pierre Bellot
Managers: Tim Guinness, Will Riley & Jonathan Waghorn Sector: Equity - Energy
Tim Guinness launched Guinness Asset Management and served as joint CEO of Guinness Flight Global AM from 1987 until the company’s takeover by Investec Asset Management in 1998. He has since run the Guinness
Global Energy fund, which he oversees alongside co-managers Will Riley and Jonathan Waghorn. The strategy invests in companies in the oil, natural gas, coal, alternative energy, nuclear and utilities sector. The concentrated equally-weighted portfolio of 30 positions is largely invested in the US (46.1%), followed by Canada (14.9%).
We prefer eurozone funds over Europe because of the Brexit case. The pound has stabilised after its initial fall and the British market and economy have been stronger than expected, but we think things could worsen in the coming months. We favour growth stocks, particularly those in value sectors such as oil or banks. The Comgest Renaissance Europe fund is a an example of a growth fund we like, which looks for growth stocks with other advantages which are often found beyond traditional hunting grounds. We also like other managers who have an adaptable investment approach, such as Eric Bendahan on his Eleva Euroland fund. This fund tries to manage risk in line with moves in the economy and aims to exploit different trends and sectors rather than always having the same level of growth. A new fund in our portfolio is the Schroders ISF Euro Equity strategy, which has nearly €6 billion in assets. When it comes to the US market, we still favour the tech sector because we don't think it’s overvalued. In line with this view we have been invested in the Edgewood US Select Growth fund for a long time, as well as the Loomis Sayles US Growth Equity fund. We also have a hedge on the dollar to cover ourselves because we think Donald Trump’s policies are likely to weaken the currency.
CIO
Natixis Wealth Management
More on Jean-Jacques Friedman's fund picks
Comgest Renaissance Europe
Jean-Jacques Friedman
Managers: Arnaud Cosserat, Laurent Dobler & Franz Weis Sector: Equity - Europe
Edgewood US Select Growth
Managers: Alexander Farman-Farmaian Sector: Equity - US
Eleva Euroland Selection fund
Managers: Eric Bendahan Sector: Equity - Europe
Loomis Sayles US Growth Equity
Managers: Aziz Hamzaogullari Sector: Equity - US
Schroders ISF Euro Equity
Manager: Martin Skanberg Sector: Equity - EuroZone
At the beginning of the year we were expecting a very strong dollar and researched the implications of tax cuts on different parts of the US market. We concluded that US small caps could do quite well this year and still believe this is the case. US small caps are less impacted by a stronger dollar as they are more domestically-focused, and we have invested in the JP Morgan US Smaller Companies fund for this reason. This fund is relatively style-agnostic and has a slight contrarian bias. It also has a high-conviction portfolio management team with a strong long-term record. We like its ability to protect on the downside in difficult markets as it focuses on companies with higher returns on capital invested but are also not overpaying for them. When markets are going through a more difficult time, our clients welcome this downside protection. We also favour the Morgan Stanley US Advantage fund. This is run by an established US growth team based in New York and concentrates on companies that can generate healthy free cash flows. A strong differentiator is what they call 'disruptive research process'. The team is dedicated to understanding how technological disruption can impact companies and its investment universe, and this has led it to change its ideas on the consumer staples part of the market quite drastically. We are not looking at any particular parts of the market for the next two years as I think there will always be pockets of interest across different sectors.
Head of mutual fund research
EFG Private Bank
More on Andrew Harradine's fund picks
Andrew Harradine
JP Morgan US Smaller Companies
Managers: Timothy Parton & Eytan Shapiro Sector: Equity - US Small & Medium Companies
Morgan Stanley US Advantage
Managers: Sam Chainani, David Cohen & Dennis Lynch Sector: Equity - US
This year has been a tough one so far for emerging economies but the market may have overreacted and the outlook could improve for the rest of the year. With this in mind, managers such as Nick Price, who runs the Fidelity Emerging Equity fund could recover strongly. This fund has underperformed lately but its fundamentals-based approach has historically outperformed benchmarks. In the developed markets, Europe is once again lagging the US where the economy is being driven by impressive returns in the technology sector. However, we have found good valuations in European equities and good managers. We favour managers who are not constrained by any investment style and can adapt their portfolios to the environment. A strategy ticking this box is the Eleva European Selection fund.
Head of fund selection
Mora Asset Management
More on Juan Hernando's fund picks
Juan Hernando
Fidelity Emerging Markets
Managers: Nick Price Sector: Equity - Global
Eleva European Selection
This fund prioritises high quality, attractively priced companies that are capable of delivering sustainable returns. Launched in 1997, the fund invests in companies from countries experiencing rapid economic growth. At the end of July this year, the portfolio’s largest exposure was to Asia (62.29), followed by Europe (28.75%).
The CEO of Eleva Capital, Eric Bendahan, manages its flagship European equities fund. The strategy invests over the medium-term horizon with a conviction bottom-up approach. Bendahan runs the fund with a high active weight of more than 80% and is run with an opportunistic, flexible and pragmatic approach.
We have been overweight Europe since the beginning of 2018 and like fund managers with high conviction bets and tilts towards value themes and cyclicality. Hans Peter Schupp, who runs the Fidecum Sicav - Contrarian Value Euroland fund, is a good example. He employs a fundamental bottom-up investment process, targeting undervalued eurozone stocks based on either low price-to-book ratios or normalised earnings over a cycle. In the European equity space we still like Isaac Chebar’s DNCA Invest Value Europe fund and the Wellington Strategic European Equity fund. Dirk Enderlein manages equity assets on behalf of Wellington’s clients, drawing on research from Wellington Management’s global industry analysts, equity portfolio managers and team analysts. His ability to find great quality businesses while manoeuvring his funds perfectly through different market regimes over the years is very impressive. Currently we are exploring new managers in the ESG equity space. On behalf of Ampega Investment our equity colleagues are managing the global equity fund terrAssisi Aktien I AMI in cooperation with the Franciscan orders and Oekom Research as external ESG research provider. Lead manager Sebastian Riefe combines an absolute best-in-class approach with the Franciscans’ strict exclusion filters. We are also looking for strategies that aim to lower the carbon footprint of their underlying equity portfolios.
Senior portfolio manager
Talanx AM (Germany)
More on Daniel Knorr's fund picks
Daniel Knorr
Fidecum Sicav - Contrarian Value Euroland
Managers: Hans Peter Schupp Sector: Equity - EuroZone
DNCA Invest Value Europe
Managers: Isaac Chebar & Don Fitzgerald Sector: Equity - Europe
Wellington Strategic European Equity
Managers: Carl Dirk Enderlein Sector: Equity - Europe
For emerging markets we recommend the Hermes Global Emerging Markets fund. We first picked it more than two years ago and like its growth style investment strategy. On the European side we have selected the Eleva European Selection fund, managed by Eric Bendahan. The manager’s flexible strategy combines well with one of our picks on the value side, the BG Long Term Value fund from Boussard & Gavaudan, which we have followed for two years. When it comes to the US, we like the Alger Small Cap Focus fund, which concentrates on small and mid caps in the US market. New funds on our radar include the Robocap Ucits strategy, which is a global product. The manager focuses on equities with a thematic overlay based on the robotisation of the economy and digitisation. We have also selected a Japanese equity fund, Yuki Japan Rebounding Growth. This small- and mid-cap fund has a very good manager and exceptional performance. Another new pick is the Amplegest Pricing Power fund, a European equity product which is more of a diversification tool. It is focused on companies that benefit from barriers to entry and competitive advantage.
La Française
More on David Tissandier's fund picks
David Tissandier
Hermes Global Emerging Markets
Managers: Gary Greenberg Sector: Equity - Global Emerging Markets
BG Long Term Value
Managers: Charles-Edouard Joseph Sector: Equity - EuroZone
Alger Small Cap Focus
Managers: Amy Zhang Sector: Equity - US Small & Medium Companies
Yuki Japan Rebounding Growth
Robocap Ucits
Managers: Jonathan Cohen Sector: Equity - Global Themes
Managers: Magotaka Oshitani Sector: Equity - Japan
Amplegest Pricing Power
Managers: Gérard Moulin Sector: Equity - EuroZone
It is difficult to identify skilful managers and equally challenging to own high active share ones through their inevitable bouts of underperformance. Therefore, a key element of our fund selection process is to combine equity managers with different styles, which can result in better risk-adjusted returns and mitigate some of the behavioural challenges of owning genuinely active managers. For example, in Japan we own the value-oriented Morant Wright Fuji Yield fund, alongside the growth-focused Tokio Marine Japanese Equity Focus fund. Forecasting which styles or areas of the market will work over any given period is difficult and poor decisions here can nullify strong fund selection. We may seek to tilt our positioning towards styles that have been out of favour, such as value in Europe. However, such an approach shouldn’t come at the expense of prudent diversification. As long-term investors, fund manager turnover in our portfolios tends to be low and focused on situations where there has been a material change, or if a compelling new idea emerges. Our most notable shift in recent months has been the addition of the THB US Opportunities fund. THB is a boutique investment firm with a considerable pedigree in US micro-cap and small-cap investment. Despite the challenges of active management in US equities, this fund accesses an area of the market that should be less efficient and that has delivered a long-term structural return premium.
Aberdeen Standard
More on Joe Wiggin's fund picks
Joe Wiggins
Selectors’ favoured funds
Here is a run-down of all the funds our expert contributors have highlighted
Funds Alger Small Cap Focus Amplegest Pricing Power Brandes global equity fund Cobas Seleccion fund DNCA Invest Value Europe I Edgewood US Select Growth Eleva European Selection Fidecum SICAV - Contrarian Value Euroland A Fidelity Emerging Markets Guinness Global Energy Hermes Global Emerging Markets JP Morgan US Smaller Companies Loomis Sayles US Growth Morant Wright Fuji Yield Morgan Stanley US Advantage Renaissance Europe Robocap Ucits fund Schroders ISF Euro Equity terrAssisi Aktien I AMI Tokio Marine Japanese Equity Focus Value Square – Equity World Wellington Strategic European Equity EUR S Acc Unh Yuki Japan Rebounding Growth
Managers Amy Zhang Gérard Moulin Brent Fredberg, Ted Kim, Kenneth Little, Brian Matthews Francisco Garcia Parames Isaac Chebar, Don Fitzgerald, Maxime Genevois Alexander Farman-Farmaian Eric Bendahan Hans-Peter Schupp Nick Price Tim Guinness, Will Riley, Jonathan Waghorn Gary Greenberg Timothy Parton, Eytan Shapiro Aziz Hamzaogullari Stephen Morant, Ian Wright, Richard Phillips, Tom Mermagen, Andrew Millward and Denis Clough Sam Chainani, David Cohen, Dennis Lynch Arnaud Cosserat, Laurent Dobler, Franz Weis Jonathan Cohen Martin Skanberg Sebastian Riefe Hiroyasu Sato Kris Hermie, Patrick Millecam Carl Dirk Enderlein Magotaka Oshitani
Fund manager scorecard
What makes a fund manager truly stand apart from his or her peers? What boxes do fund selectors need to tick before they add an equity fund to their buy list? We hear from a range of international experts about the qualities that attract them to a manager and the traits that put them off
what i want in a manager:
what rings alarm bells:
Frequent use of statistical research to keep the fund in touch with the wider, macro issues that influence markets Constant reflection. A manager must be able to compare their current positions with ones held six months or even a year ago. Consistent process Transparency Understanding that beating the index isn’t sufficient proof of capability Ability to generate recurring alpha Maintain a healthy risk budget compared with the benchmark Genuine passion for the work Desire to continually improve by acknowledging and learning from mistakes Preparation for a number of scenarios A shared investment vision Vested interests: a manager ought to invest in their own fund Soft-closed funds Strong performance
Lack of fresh ideas Benchmark huggers Lack of humility Deviations in management style/style drift Lack of experience Poorly-defined investment styles Short-termism High turnover in the investment team Lack of risk-taking Excessive fees
Joe Wiggins, Aberdeen Standard:
‘Our main issues are with ill-defined or amorphous investment styles or situations where behaviour is dominated by short-term performance considerations'
Top-performing managers in equities
Having heard who the selectors are backing, let’s take a closer look at who the outstanding performers currently are in the largest equity sectors. Here we compare the top two performers on a five-year absolute return basis in Europe, US and global equities
Sector: Equity - Europe
Eva Fornadi
Sharon Bentley-Hamlyn
FUND: COMGEST GROWTH EUROPEOPPS EUR ACC Total return over the last five years (euro terms): 105.69% Citywire-assigned benchmark FTSE World Europe TR EUR: 52% Citywire rating: Eva Fornadi, the top performer in the European equities sector, joined Comgest as an analyst in 2005 and is now a portfolio manager specialising in European small and mid-cap companies. She holds a degree in business studies from Oxford Brookes University and a Hungarian degree in business studies from the International Business School in Budapest.
FUND: FONDACO GLOBAL FUND LUX EU CONVICTION EQ I D EUR Total return over the last five years (euro terms): 97.85% Citywire-assigned benchmark FTSE World Europe TR EUR: 52% Citywire rating: The runner-up is Sharon Bentley-Hamlyn, founder, director and head of investment research at Aubrey Capital, as well as lead fund manager at the firm for European equities. Prior to this she worked at Walter Scott & Partners from 1992 to 2006. She started her financial career with Crédit Commercial de France as an analyst in its mergers & acquisitions division.
Sector: Equity - US
Alexander Farman-Farmaian
Dan Davidowitz
FUND: EDGEWOOD L SELECT US SELECT GROWTH A USD Total return over the last five years (USD terms): 127.31% Citywire-assigned benchmark S&P 500 TR: 85.26% Citywire rating: Alexander Farman-Farmaian has spent 12 years at Edgewood Management and prior to that worked for almost two decades at WP Stewart. In addition to his management work, he produces a regular market update called ‘Economents’ for clients.
FUND: POLEN CAPITAL FOCUS US GROWTH INST, POLEN GROWTH FUND; INSTITUTIONAL Total return over the last five years (USD terms): 124.89% Citywire-assigned benchmark Russell 1000 Growth TR: 108.48% Citywire rating: Dan Davidowitz joined Polen Capital in 2005 and now leads the investment team. Prior to joining Polen Capital he spent five years at Osprey Partners Investment Management as a research analyst and vice president. He also spent five years in the healthcare sector and held different positions at Memorial Sloan-Kettering Cancer Center.
Sector: Equity - Global
Kristian Heugh
Terry Smith
FUND: MORGAN STANLEY GLOBAL OPPORTUNITY A USD, MORGAN STANLEY INSTITUTIONAL GLOBAL OPPTY PORT; I Total return over the last five years (USD terms): 164.36% Citywire-assigned benchmark MSCI World TR USD: 61.76% Citywire rating: Kristian Heugh is head of the global opportunities team at Morgan Stanley and leads global and international investing for the growth investing platform. He joined the firm in 2001 and has 16 years’ investment experience. Previously, he was a co-portfolio manager of a technology strategy and an international equity strategy.
FUND: FUNDSMITH EQUITY I CLASS ACC (ST DR), FUNDSMITH EQUITY FUND FEEDER EUR I ACC, FUNDSMITH SUSTAINABLE EQUITY I ACC GBP Total return over the last five years (euro terms): 113.54% Citywire-assigned benchmark MSCI World TR USD: 61.76% Citywire rating: Terry Smith founded Fundsmith in 2010 where he is CEO and runs the Fundsmith Equity fund, a large-cap global equity portfolio. Born in London, he has experience in a number of roles including CEO of Collins Stewart and a stint at UBS Phillips & Drew. He studied history at University College Cardiff and went on to attend The Management College in Henley.
IDEAS GAP
Equity-focused fund selectors have an ever-expanding hunting ground, with new strategies hitting the launch pad every month. But even with the tens of thousands of funds at their fingertips, there are still many areas that lack the vision, talent or innovation they are looking for. ‘As the asset management industry is a mature one, much of what we see today is evolution rather than revolution,’ says Frank Huttel, head of portfolio management at FiNet AM. ‘With most asset classes, regions and themes covered, it is difficult to find truly new ideas or strategies,’ he adds. Some areas are so well researched that it seems almost impossible to gain an edge, none more so than the US equity market. Commenting on the region, Joe Wiggins, a fund selector at Aberdeen Standard says: ‘It is difficult to define why this has been the case – it might be due to the sheer coverage the market receives or its structure and composition. The rate of active management outperformance in the US is so low that it raises doubts on whether you should include any of these funds in your selection at all.’ Emphasising this point, you only need to look at the small-cap market to see how a smaller amount of analytical coverage increases your chances of finding a good manager, says Juan Hernando from Mora Asset Management. This applies to the wider market beyond the US, says David Tissandier, head of fund selection at La Française. At this level, the relatively high number of companies off the radar increases the likelihood of outperformance. Geographically, emerging markets are a particular hotspot for quality managers, he adds. A NEW REALM Private equity is another area of lean pickings at the moment but the time is ripe for the creation of a liquid market for these assets, says Michele de Michelis, a fund selector at Swiss-based Frame Asset Management. There ought to be more listed private equity available for sale, he says: ‘At the moment, all the listed stocks are more or less researched and followed so it’s difficult to find a good one. However, unlisted companies offer a lot of opportunities.’ If investment vehicles were able to buy private equity, these assets would then be listed and spur the creation a liquid market. ‘This would definitely be an innovation,’ de Michelis says. De Michelis draws a comparison with the use of junk bonds in the 1970s, which at the time were considered a niche space but are now widely used. TOMORROW’S WINNERS Indeed, accessing the illiquid market is a strong method for identifying trends early and learning about new areas of the market to tap, says Cesar Perez Ruiz, CIO at Pictet Wealth Management. The Swiss private bank invests in private equity, including venture capital. ‘This is because venture capital these days will be areas of disruption in different sectors.’ A new trend in the market that the CIO identifies is the connection between private and public equity markets, as investors can take advantage of the dynamic between the two. ‘Seeing those initial trends in private equity makes us take better investment decisions in public stocks,’ he says.
Frank Huttel, FiNet AM
‘As the asset management industry is a mature one, much of what we see today is evolution rather than revolution’
Cesar Perez Ruiz, Pictet Wealth Management
‘Seeing those initial trends in private equity makes us take better investment decisions in public stocks’
Citywire Rating
Morant Wright Fuji Yield
Sector: Equity - Japan Morant Wright Fuji Yield fund
THB US Opportunities
Sector: US Small & Medium Companies
Tokio Marine Japanese Equity Focus D JPY
Managers: Hiroyasu Sato Sector: Equity- Japan
Total return figures are an average of a manager’s funds, calculated to the end of July 2018 in euro terms. Benchmarks allocated by Citywire
Traditional fixed income no longer offers the degree of upside potential or downside protection it once used to. Developed markets are beset by low yields, while higher-yielding emerging ones face trade war troubles, particularly in China, Russia and Turkey. Selectors are therefore being pushed into niche pockets of fixed income and more elaborate strategies to generate returns. We hear from a line-up of top European fund pickers about where they see the best prospects and the managers they are using to tap them.
In terms of pure low-risk fixed income, we are currently tilted towards the short-duration, short end of the curve. In most of the G7 countries we tend to position in investment grade. Clearly we have a preference for US investment grade versus Europe. The yield pick-up in Europe is minimal and we are not underweight or negative but think the market is negative due to the spread compression there. In that space, on the investment grade side, we prefer financials as there is still a bit of potential there. There are also further opportunities in higher-risk, sub AT1s, so we might have a little exposure there and some specific financial funds. On the pure credit side, in credit high yield, spreads are relatively tight and can stay so for a while. We have selective credit allocation there with some managers who are able move around the credit spectrum in that area. We haven’t reduced our exposure to high yield but are not overweight. One fund we like on this side is the UBAM Global High Yield Solution strategy because it invests mainly via derivatives, has no duration and is very flexible. In investment grade, we favour the BlueBay Investment Grade Bond fund. In terms of emerging debt, there are opportunities in the short term as spreads are widening and we might gain some exposure through Barings or BlackRock. Duration has a little bit more flexibility but the range in rates is relatively tight. We have seen more volatility in emerging local currency, but that is hard to time. I haven’t seen any stand-out managers in this space. We were surprised by how well H2O was doing but the drawdown was also surprising. If you are aware of these risks, you may be more prepared to take a bet. They have a strong team and in the long run, these funds that aren’t constrained by benchmarks are likely to do well.
Architas
More on Jaime Arguello's fund picks
UBAM Global High Yield Solution
BlueBay Investment Grade Bond
Jaime Arguello
Managers: Philippe Gräub & Christel Rendu de Lint Sector: Bonds - Global High Yield
Managers: Thomas Moulds, Andrzej Skiba & Marc Stacey Sector: Bonds - Euro Corporates
As the cycle matures, our team is watching for signs of risk-off positioning, such as the rise of protectionism, geopolitical risks, recent spikes in the oil price, and monetary policy uncertainty. In fixed income, we are building defensive exposure in US treasuries, and see alpha opportunities in Asian high yield given the ongoing turnaround in this part of the market. Japan traditionally offers significant defensive equity exposure, but its more stable political environment means there is room on the upside there. Fixed income funds we like include M&G Corporate Bond. Investing in sterling corporate bonds, this team of credit analysts is one of Europe’s largest, and, uniquely for this space, has a team of ‘workout specialists’, who work with defaulting borrowers to renegotiate terms offering better odds of recovering M&G’s investment in the event of default. Another pick, managed by specialty global government bond house Colchester, is the Colchester Global Bond fund, which offers a differentiated approach to government bonds.
CIO of multi asset
Fidelity International
More on James Bateman's fund picks
M&G Corporate Bond
James Bateman
Managers: Richard Woolnough Sector: Sterling Corporate Bond
Central bank policy normalisation, coupled with trade wars and problems in some European countries is making it difficult to find funds with a positive performance this year as yields are going up and down without any clear direction. Flexibility and quick reactions are key qualities for bond managers. With this in mind, we recently added the DNCA Alpha Bonds fund, an absolute return bond strategy without any benchmark bias, managed by Pascal Gilbert and François Collet. The fund has a macroeconomic, top-down approach and bonds are selected through a simple but efficient valuation model. We are also invested in other flexible funds such as Blackrock BSF Fixed Income and Nordea 1 - Flexible Fixed Income but their performances are not that good. We also like aggregate bond funds which can move more freely against their benchmark in terms of allocation and duration, such as the BlueBay Funds - Investment Grade Euro Aggregate Bond fund (+0.87% YTD – 31/07/18 – I share class). We expect such names to outperform the benchmark with positive absolute performances in an environment where volatile interest rates can result in markets switching very quickly from risk on to risk off.
Portfolio manager
ING Luxembourg
DNCA Invest Alpha bonds
Thierry Carabin
Managers: Pascal Gilbert & François Collet Sector: Bond Strategies
Nordea 1 - Flexible Fixed Income
Managers: Asbjørn Trolle Hansen, Karsten Bierre, Caroline Henneberg & Søren Lolle Sector: Global Flexible
Blackrock BSF Fixed Income
Managers: Michael Krautzberger & Johan Sjogren Sector: Bond Strategies
BlueBay Funds - Investment Grade Euro Aggregate Bond
Managers: Mark Dowding, Russel Matthews & Kaspar Hense Sector: Bonds - Euro
We are constructive on emerging markets despite the underperformance year-to-date. This year we made an important step to include local currency debt in our strategic asset allocation. That play has not worked year-to-date but over the long run we are convinced it will be the correct decision. We capture positive real yields in emerging markets versus a negative real yield across the G3 government bond market, so it seems prudent to give clients higher exposure to EMD. We hold the GAM Emerging Market Local Debt fund and we also like BlackRock in this area. One of the best picks in emerging markets is the Man GLG Emerging Market Debt Total Return fund run by Guillermo Osses. Osses has been the only consistently positive manager in this space in 2018. He has been quite bearish on the asset class and implemented material shorts on the currency this year which proved a good move. We want our clients to have a larger exposure to EMD but we structure this using a core/satellite approach, where we increasingly highlight products that are more defensive with historical volatility of less than 5%. This means we focus on short duration EMD, so the Neuberger Berman Emerging Market Short Duration fund would feature as a core allocation, as would Guillermo’s Total Return strategy. We then surround these funds with the beta, like GAM and Aberdeen, and can then ask our clients to have a larger exposure while the risk-adjusted metric is actually more constructive.
Head of fixed income and multi asset class
Credit Suisse
Omar Gadsby
GAM Emerging Market Local Debt
Managers: Paul McNamara Sector: Bonds - Emerging Markets Global Local Currency
Man GLG Emerging Market Debt Total Return
Managers: Guillermo Osses Sector: Bonds - Emerging Markets Global Local Currency
We have recently expanded our offering of externally managed fixed income funds, while increasing our analysis on ESG criteria. Since 2017 we have rated funds based on their ESG profiles. Favoured strategies include the Neuberger Berman Emerging Market Debt fund due to its strong team continuity and we have been invested here since the ING days. The team has a solid investment process which has been tested and proven over time. Significant resources and a global presence are also likely contributors to its good returns. We also like the high standard of ESG integration in its investment process. Elsewhere, we like SKY Harbor’s entrepreneurial spirit combined with an established investment process which has generated strong risk-adjusted returns over time. Additionally the team has good analytical skills, with experience and knowledge of the US high yield market. We also appreciate its continuing commitment to ESG within its research capabilities and investment process. Recently we started looking for a CLO manager and have chosen Neuberger Berman thanks to its team’s long experience in the loan and CLO market. In-depth analysis of complex underlying investments combined with a sophisticated investment process focused on quality, gives us confidence the team can implement its approach within a Ucits structure. Again, we also like the fact that ESG is embedded in its analysis and improvements on this side are ongoing. As a result of our search for an ESG-focused, unconstrained European equity fund, we have added the Liontrust Sustainable Pan-European Equity fund to our offering. This has a strong investment process coupled with in-depth ESG analysis within an experienced team.
Head of manager selection
SEB
More on Mikael Haglund's fund picks
Mikael Haglund
Neuberger Berman Emerging Market Debt
Managers: Rob Drijkoningen, Gorky Urquieta, Jennifer Gorgoll, Bart van der Made, Raoul Luttik, Vera Kartseva & Nish Popat Sector: Bonds - Emerging Markets Global Hard Currency
Liontrust Sustainable Pan-European Equity
Managers: Neil Brown & Peter Michaelis Sector: Equity - Europe
Within fixed income we are underweight duration and are cautious on credit given the late stage of the credit cycle. That leads us to funds with shorter interest rate duration and lower credit spread duration, as well as to strategies which are more flexible. We sold our local emerging market exposure at the beginning of the year which gave us some protection from the collapse in EM currencies. Given the challenging environment it is key to think about what to avoid, so we have cut our advisory list of recommended funds and focused solely on our top picks. We have also reduced exposure to sectors with little potential given the low yield environment and have therefore pulled back from some European fixed income markets. At this late stage of the credit cycle we are still likely to face rising rates, so our focus in the mid term is on funds with lower interest rate duration and low credit spread duration. Emerging markets, although volatile, should provide the necessary yield. For the long term, SRI is becoming increasingly important and fund managers who incorporate ESG analysis into their process will be able to reduce tail risks. Our latest picks include floating rate funds such as M&G Global Floating Rate High Yield, which we added at the beginning of the year and we also have a US short-duration high yield fund on our radar. We like short duration US high yield for two reasons. First, the shape of the yield curve in the US makes short-term maturities attractive versus bonds with longer maturities. You do not give up as much yield as you did in the past by investing in bonds with short maturities. Second, we like its defensive characteristics given the low spread duration compared with the broad high yield market.
J Safra Sarasin
More on Adam Mika's fund picks
Adam Mika
M&G Global Floating Rate High Yield
Managers: James Tomlins Sector: Bonds - Global High Yield
We favour two managers in the current market. The first is Ariel Bezalel who manages the Jupiter Dynamic fund. This flexible, global strategy targets sovereign bonds, corporate bonds (investment grade and high yield) and currencies. Bezalel builds his macroeconomic view in line with the stage of the economic cycle in different regions, the monetary policy of the central banks and expectations of inflation and interest rates. Bezalel decides what the fund invests in and how the portfolio is constructed and he doesn’t consider the benchmark unless those assets offer more value. We also like Laurent Fabiani-Lagarde, who runs the G Fund Alpha Fixed Income fund. This strategy does well in market environments with high volatility, low correlation and wide spreads. Fabiani-Lagarde looks for anomalies in the market between bonds and CDS, CDS indices, sovereign bonds and credit through arbitrage strategies. The investment universe is highly diversified and the fund can invest in sovereign bonds, corporate bonds (investment grade and high yield), currencies and derivatives, through long and short positions. This is a strategy that can be used as an alternative to money market-plus funds given its low volatility. After the recent turbulence in fixed income markets, we have tactically recommended two funds to take advantage of widening spreads. On the one hand, the Generali Euro Bond 1-3 Years fund is focused on the sovereign debt of peripheral countries and is a good to way to play the higher yields in the region caused by Italy’s troubles. On the other hand, the GAM Star Credit Opportunities strategy concentrates on the subordinated debt of European banks and insurers, and offers another interesting play on political uncertainty in Europe.
Fund analyst
Inversis
More on Borja Picon's fund picks
Borja Picon
Jupiter Dynamic Bond fund
Managers: Ariel Bezalel Sector: Bonds - Global Flexible
Generali Euro Bond 1-3 Years
G Fund Alpha Fixed Income
Managers: Laurent Fabiani-Lagarde Sector: Bonds - Global
Managers: Mauro Valle Sector: Bonds - EuroZone Short Term
GAM Star Credit Opportunities
Managers: Grégoire Mivelaz & Anthony Smouha Sector: Bonds - Euro Corporates
Within fixed income we have been heavily skewed toward the short duration high yield space for two years. We favour the US market, which has shown the most consistent and predictable earnings growth since the global financial crisis. Net profit margins are hitting record highs and its economic cycle seems more and more self-sustained, driven by private investment and consumption. Earnings generation and net leverage are our main concerns when we invest in the fixed income space, and we feel the US space provides the best possible backdrop for fixed income investors in this context. Moreover, within the US high yield space, net leverage is decreasing, which in turn is pushing up the interest coverage ratio. With these factors in mind we favour the Sky Harbor US Short Duration High Yield fund, which has been our best pick in this area for a few years now.
Fund of funds manager
AZ Capital
Marco Vironda
Funds Blackrock BSF Fixed Income BlueBay Funds - Investment Grade Euro Aggregate Bond BlueBay Investment Grade Bond Colchester Global Bond DNCA Invest Alpha bonds G Fund Alpha Fixed Income GAM Emerging Market Local Debt GAM Star Credit Opportunities Generali Euro Bond 1-3 Years Jupiter Dynamic Bond fund M&G Corporate Bond M&G Global Floating Rate High Yield Man GLG Emerging Market Debt Total Return Neuberger Berman Emerging Market Short Duration Nordea 1 - Flexible Fixed Income Sky Harbor US Short Duration High Yield UBAM Global High Yield Solution
Managers Michael Krautzberger, Johan Sjogren Mark Dowding, Russel Matthews, Kaspar Hense Thomas Moulds, Andrzej Skiba, Marc Stacey Ian Sims Pascal Gilbert, François Collet Laurent Fabiani-Lagarde Paul McNamara Grégoire Mivelaz, Anthony Smouha Mauro Valle Ariel Bezalel Richard Woolnough James Tomlins Guillermo Osses Rob Drijkoningen, Gorky Urquieta, Nish Popat, Bart van der Made & Jennifer Gorgoll Asbjørn Trolle Hansen, Karsten Bierre, Caroline Henneberg & Søren Lolle Anne Yobage Philippe Gräub, Christel Rendu de Lint
Adam Mika, J. Safra Sarasin:
‘A fund which has achieved reasonable performance with high levels of volatility and drawdowns compared to a benchmark or a peer group rings alarm bells for us. We are not averse to volatility but we like it in asset classes other than fixed income, be it equities or alternative investments. When volatility starts to materialise, clients often do not have the nerve to stay invested and sell with a loss. Unfortunately, investment horizons are becoming shorter nowadays, so we are looking for consistent performers within the peer group, even if that seems boring’
What makes a fund manager truly stand apart from his or her peers? What boxes do fund selectors need to tick before they add a fixed income fund to their buy list? We hear from a range of international experts about the qualities that attract them to a manager and the traits that put them off
Strong level of experience Good back-up with a sizeable analyst team Ability to deliver a constant stream of income Good communication and interaction between managers and analysts Achieving less correlation between fixed income and other asset classes, particularly equities Ability to cushion portfolio in times of high volatility/moderate levels of drawdown Consistent returns Transparency from the fund provider Risk taking and risk management Flexibility in reallocating risk Flair for market timing Strong macro approach for government bond managers Ability to manage asset allocation and duration Capacity to combine top-down and bottom-up expertise
High levels of volatility Highly concentrated portfolios Illiquid holdings Stubbornness Big drawdowns in the past Unwillingness to share ideas
Sector: Global Flexible
Sector: Global High Yield
Bruno Crastes
Daniel Ivascyn & Alfred T. Murata
Finding an outperforming fixed income manager has become an increasingly difficult task, but which managers are proving their prowess in this tough environment? Here we showcase the top two managers with the best five-year, absolute return numbers across two key sectors
H2O MULTIBONDS IUSD 5-year total return: 146.34% 5-year average manager total return: 7.93% Citywire rating: Running far in the lead, nearly tripling the total return of his closest competitor over five years is Bruno Crastes. Crastes set up H2O Asset Management alongside Vincent Chailley in 2010 and serves as CEO. Well-known for his active management style in fixed income, Crastes started his career in finance as a proprietary trader on the global bond markets for Banque Louis Dreyfus in 1988. He began managing global fixed income portfolios at Crédit Agricole Asset Management in 1990 and his quick rise through the ranks at the company saw him appointed head of international fixed income in 1997 following the merger between Indosuez Asset Management and Segespar, the predecessor of CA Asset Management. Crastes was made CIO and deputy CEO of CAAM’s London operation in November 2002.
5-year total return: 47.01% 5-year average manager total return: 7.93% Citywire rating: Pimco AA-rated pair Daniel Ivascyn and Alfred Murata rank second and are best known for their work on the giant Pimco GIS Income fund. Ivascyn is group CIO and a managing director at Pimco in the Newport Beach office. He is lead portfolio manager for the firm’s income strategies and credit hedge fund, and also oversees mortgage opportunistic strategies. Murata is a managing director and portfolio manager, managing income-oriented, multi-sector credit, opportunistic and securitised strategies. Prior to joining Pimco in 2001, he researched and implemented exotic equity and interest rate derivatives at Nikko Financial Technologies.
Julien Daire
Christian von Ballmoos
CPR CREDIXX GLOBAL HIGH YIELD - I 5-year total return: 55.50% 5-year average manager total return: 16.03% Citywire rating: Leading the way for global high yield is Julien Daire, head of credit management at CPR Asset Management. Daire started at the group in 1998 as a risk manager and later became head of the risk department. He uses a directional investment style and manages the CPR Credixx Global High Yield and CPR Credixx Investment Grade funds. Based in Paris, he studied at Rennes University.
PVB (CH) ASSET-BACKED SECURITIES FUND (USD) A 5-year total return: 43.62% 5-year average manager total return: 16.03% Citywire rating: In second, ahead of the remaining 141 managers tracked over five years by Citywire in this segment, is Christian von Ballmoos, who co-founded Swiss-based fund management company Pernet von Ballmoos in 2004. Prior to that he served as co-head of private client sales at Credit Suisse Financial Services, responsible for global product distribution for private, retail and corporate clients.
Sector: Bonds - Emerging Market Global Hard Currency
Rob Drijkoningen, Gorky Urquieta, Bart van der Made
Christian Mejrup
H2O MULTIBONDS IUSD 5-year total return: 34.09% 5-year average manager total return: 15.05% Citywire rating: The Neuberger Berman emerging market debt trio hold the top spot in the hard currency sector. Rob Drijkoningen joined Neuberger Berman in 2013. Prior to this, he worked at ING Investment Management, where he started managing international fixed income portfolios in 1995, including currency risks. He was appointed head of the global markets debt team upon its inception in 1997. Gorky Urquieta was born in Bolivia and prior to joining Neuberger Berman in 2014, worked at ING Furman Se lz, and as a portfolio manager in emerging markets and co-head of emerging market debt at ING Investment Management. Born in The Netherlands, Bart van der Made started his career in 1997 as an economist at ING Barings and from 2000 he worked at ING IM, becoming a portfolio manager in 2009. He then joined Neuberger Berman in 2013.
GLOBAL EVOLUTION FUNDS - FRONTIER MARKETS I EUR, GLOBAL EVOLUTION FUNDS - EMERGING FRONTIER Z USD, GLOBAL EVOLUTION FUNDS FRONTIER OPP Z (EUR) 5-year total return: 34.05% 5-year average manager total return: 15.05% Citywire rating: In close second, generating just 0.01% behind the leader in this sector is Christian Mejrup who works at Global Evolution. A senior portfolio manager, he is responsible for formulating hard currency and local currency strategies with a special focus on frontier countries. Previously he held a similar position in Sydbank where he was part of the successful investment management team responsible for emerging markets fixed income and FX mutual funds.
Identifying fund manager talent typically begins by homing in on benchmark beaters, but in the current European fixed income sector that approach could eliminate all but a small handful of funds, says Isabelle Tillier, head of fund selection at FundQuest Advisor. Using the company’s own proprietary universe, Tillier found only eight managers who outperformed the index on an annualised five-year basis. With so few outstripping the index, Tillier has been forced to switch towards passive strategies. The same trend plays out in the US and global markets, she says. European high yield poses similar challenges, where again, only eight managers outperformed the benchmark over the same time-frame. The situation is even worse when it comes to the global high yield sector, she says. ‘This is why sound fund selection requires experience, especially in the fixed income area as there are many aspects to consider.’ However, she says the EMD hard currency sector is a better hunting ground, where more than half of the peer group outperform the benchmark over the same five years. FLEXIBLE FUNDS When it comes to flexible and unconstrained strategies, the challenge is finding consistent performance over time, she says. ‘There are not many who can ensure top-notch asset allocation, management of duration and currencies, and risk management at the same time.’ Even so, the credit unconstrained space, specifically, offers more opportunities because the process is more bottom-up driven, she says. ‘As a consequence, duration and currency do not require the same attention as in other strategies.’ Unlike Tillier, Philippe Mitaine, a senior fund analyst at Lyxor Asset Management, says it is easier to select funds among more flexible strategies. This is probably down to the fact that managers face fewer constraints in implementing their views across different fixed income segments, he adds. On benchmarked funds, the sources of alpha are more limited, so the potential for outperformance is lower, especially in a world where interest rates are compressed. Elsewhere, Adam Mika, a fund selector at J. Safra Sarasin says consistent performers are rare in absolute return. ‘This asset class is complex, broad and very demanding. Here, even the most experienced fund managers struggle, because they may be wrong on duration or sector. However, the biggest detractor to performance over time in multi-currency portfolios is FX,’ he says. Mika is therefore very selective in the absolute return space and only buys funds the team fully understands. INNOVATION LAG In terms of innovation, the fixed income market is a long way behind its equity counterpart, says John Mallon of Classis Capital. ‘Equities are like the brash and more extravagant little brother of the fixed income market, which is more conservative and sensible. High yield is maybe the middle brother,’ he says. The equity market often leads the way in product development and new ideas are easier to implement. In this respect, there is a big gap in the fixed income market when it comes to factor investing, he says, as investors are still puzzling over how to do it. Nevertheless, Mallon expects more funds will move into this space as specialists at BlackRock have already expressed an interest in implementing traditional factors in fixed income. BACKWARD STEPS Elsewhere, Bruno Dhoosche, head of fixed income strategies at Allfunds Bank, says inflation-linked products are set to become increasingly important but at the moment there isn’t much choice. ‘There is not a lot of competition in that market, with only a few key players, and there tends to be fairly low tracking error, which means limited alpha generation. ‘Some of the bigger players have removed their products from this area, for various reasons, and this has further reduced the pool for potential allocations. That is disappointing and not something which is going to change overnight,’ he says.
Isabelle Tillier, FundQuest Advisor
‘There are not many who can ensure top-notch asset allocation, management of duration and currencies, and risk management at the same time’
John Mallon, Classis Capital
‘Equities are like the brash and more extravagant little brother of the fixed income market, which is more conservative and sensible. High yield is maybe the middle brother’
Colchester Global Bond
Managers: Ian Sims Sector: Bonds - Global
Neuberger Berman Emerging Market Short Duration
Managers: Rob Drijkoningen, Gorky Urquieta, Nish Popat, Bart van der Made & Jennifer Gorgoll Sector: Bonds - Emerging Markets Global Hard Currency
Sky Harbor US Short Duration High Yield
Managers: Anne Yobage Sector: US dollar high yield
The Sky Harbour Global Funds’ US high yield strategy invests in below investment grade corporate debt securities, aiming to generate a high level of current income while experiencing lower volatility than the broader high yield market. According to the managers’ statement, the most speculative securities, yielding in excess of 9%, and longer duration led the performance in July, while the shortest duration securities lagged. All sectors posted returns for the month, but healthcare and technology were out in front while automotive and banking were the poorest performers.
PIMCO GIS Diversified Income Inst USD Acc, PIMCO GIS Diversified Income Dur Hdg E USD Inc, PIMCO GIS Income E USD Acc, PIMCO Income FICFI Multimercado IE, PIMCO Income FI Multimercado IE
Bruno Dhoosche, Allfunds Bank
‘There is not a lot of competition in that market, with only a few key players, and there tends to be fairly low tracking error, which means limited alpha generation’
Alternative investments have become an essential part of any selector’s tool-kit, providing much-needed diversification and scope for more tactical plays. However, the flexible nature of these strategies can make it difficult to compare managers, so fund pickers need a clear idea of what to look for before adding them to the buy list. We hear from the experts about the telling traits that can attract them to or put them off a manager. Selectors also reveal the funds that have made the grade.
We have been adding to equity long/short and event-driven spaces this year. With the former, the levels of intra-stock correlation are dropping away and the opportunities are increasing. In the latter case, M&A levels have been very elevated in recent years due to factors such as the low cost of borrowing, optimism driven by Trump’s fiscal policies and high stock valuations. Furthermore, until very recently there have been good completion rates. Funds we favour include Janus Henderson UK Absolute Return and Lyxor Tiedemann Arbitrage Strategy. As we build long-only multi-asset funds of funds ourselves, we only look at absolute return multi-asset strategies. As such, the two latest additions to our roster were the Lyxor Tiedemann fund (an alternative Ucits fund where we increased our weighting) and the Invesco Perpetual Global Targeted Return fund (an absolute return multi-asset Ucits vehicle which was a new addition).
Head of manager and fund selection
Barclays Investment Solutions
More on Ian Aylward's fund picks
Janus Henderson UK Absolute Return
Lyxor Tiedemann Arbitrage Strategy
Managers: Luke Newman & Ben Wallace Sector: Alternative Ucits - Long/Short Equity
Managers: Drew Figdor Sector: Alternative Ucits - Event Driven
Ian Aylward
Our goal is not necessarily to find the best alpha generator but to select the best fit for our portfolio. In other words, we expect our main sources of alpha to be within our equity and fixed income allocations with alternatives stepping up when the others are not. We conduct lengthy quantitative and qualitative analysis. For the latter, we sit down with managers and try to understand the drivers that influence their decisions. We also monitor their exposure to factors or popular themes and watch out for potential dangers such as falling liquidity or a risk parity sell-off. We tend to select alternative funds from boutiques rather than bigger houses as smaller set-ups are usually more nimble and their interests are solely dependent on performance. Two strategies have attracted our attention in this area. The first is the H2O Macro funds range where volatility is expected but so far this has come hand in hand with very respectable recovery ratios. The other is Keyquant, a CTA company based in Paris with a sound investment strategy that is both adaptable and responsive.
Millennium BCP
More on Guilherme Cardoso's fund picks
H20 Macro funds
Guilherme Cardoso
Managers: Vincent Chailley Sector: Alternative Ucits - Global Macro
KeyLux Umbrella - Key Trends Ucits
Managers: Robert Baguenault de Viéville & Raphael Gelrubin Sector: Alternative Ucits - Managed Futures
In terms of liquid alternatives we prefer more non-directional strategies such as multi-strategy products or equity market-neutral strategies. We think it is still a good environment for event-driven funds given the amount of corporate activity and M&A we are seeing. When it comes to mixed assets I favour funds that are flexible and able to deliver attractive returns but which are also diversified and able to reduce equity exposure if they need to. I would highlight two funds in this context. The first is the M&G Dynamic Allocation fund, whose experienced investment team focuses on valuation and behavioural finance, which should help them navigate the turning point in the market. The second is the Invesco Global Income fund, which has a strong track-record. On equity market neutral funds I favour Pictet Total Return Agora, which unfortunately is hard-closed. Another event-driven strategy we like is Syquant Capital’s Helium Selection fund run by Xavier Morin. This is run on a hedged basis, focused on Europe and the US and concentrates on hard catalysts rather than taking the kind of risks associated with IPOs or share arbitrage. A lot of big multi-strategy managers that have a target-return type of approach haven’t delivered and have only outperformed over the last two or three years. One fund from this category that we are working with is Amundi Funds II – Multi-Strategy Growth, which has met its performance brief.
Head of hedge funds and mutual fund selection
Deutsche Bank
More on Ian Crispo's fund picks
M&G Dynamic Allocation
Managers: Juan Nevado & Tony Finding Sector: Mixed Assets - Flexible Other
Helium Selection
Managers: Xavier Morin Sector: Alternative Ucits - Multi Strategy
Ian Crispo
In the absolute return area we are looking for market neutral strategies so we want to avoid any type of structural beta these managers might have in any asset classes. By definition, this excludes long/short equity managers with a structural net bias of, for example, 20% or above, because we think at these levels the returns are more driven by the market’s direction than by the manager’s skill. Recently, merger arbitrage has attracted our interest. There has been a lot of stress in this area, partly driven by the uncertainty on outstanding deals that are affected by the trade conflict between the US and China. From this perspective, it looks quite interesting to seek exposure in manager arbitrage as the economic cycle favours M&As. The only cloud on the horizon is the political climate so we prefer managers who focus more on national deals rather than cross-border ones and this is an area where we have recently increased our exposure. We have added the BlackRock Global Event Driven fund recently because manager Mark McKenna has an impressive background in the space, having worked at hedge strategies and big endowment funds where he was responsible for mergers and event-driven books. He has a very convincing track record in this sector.
Union Investment
More on Joerg Schmidt's fund picks
Joerg Schmidt
BlackRock Global Event Driven
Managers: Mark McKenna Sector: Alternative Ucits - Event Driven
As equity markets continue to rise, long/short investments are notching up reasonably good performance, while sectors such as managed futures have not been doing so well. However, we are now allocating more to managed futures and to global macro because we think this period of underperformance might be over soon. At the same time, we are trying to avoid any long-biased equity long/short managers because we don't need equity beta through a manager where we expect returns that are independent of the market. With this in mind we are currently allocating to CTAs and global macro and staying in the equity long/short space, while playing niche market neutral/country or sector managers. We are steering clear of global equity long/short managers trading large-cap stocks on a global basis, because we don’t think much value can be added there. What we do like is dedicated smaller country or sector funds. One of our favoured picks is the PSAM World Arb Fund – Event Driven / Merger Arbitrage Fund (Offshore).
Head of hedge funds
Feri
More on Marcus Storr's fund picks
Marcus Storr
PSAM World Arb Fund – Event Driven / Merger Arbitrage Fund (Offshore)
Managers: Peter Schoenfeld Sector: Alternative Ucits - Event Driven
On the alternatives side we focus mainly on Ucits funds and have a multi-manager strategy with 10 underlying funds. We try to get a broadly diversified exposure, so we have some global macro managers, equity long/shorts, CTAs and some risk premia and multi-strategy funds as well. Within the sub styles, such as global macro, we like a Stockholm-based portfolio manager called the IPM Systematic Macro fund. This is often classified as a CTA but the managers don’t use any price data in their models, so they don’t have the momentum or trend-following exposure of managed futures strategies, which in long bull markets tends to have high correlations with risky assets. IPM has performed very well in more turbulent markets thanks to its diversified approach. We are also invested in the GMO Global Macro Strategy, which is a Boston-based investment firm although the team we are invested with works in Australia. The managers are a bit more systematic and combine momentum and value in a macro strategy. This momentum focus sits well alongside the IPM fund. Within global macro we also favour H2O. This company has a range of global macro strategies with varying risk profiles. The most aggressive has quite high gross exposure and equity-like volatility. In the risk premia space we think Man’s Alternative Style Premia fund looks promising even though it only has a short track record. It uses spare capacity from AHL and Numeric, which are two organisations within Man.
Head of asset allocation and manager selection
DNB
More on Fredrik Wilander's fund picks
Fredrik Wilander
Equinox IPM Systematic Macro
Managers: Ajay Dravid & Rufus Rankin Sector: Mixed Assets - Global Macro
Funds Amundi Funds II – Multi-Strategy Growth BlackRock Strategic Funds - Global Event driven Fund Equinox IPM Systematic Macro GMO Systematic Global Macro Strategy Helium Selection Invesco Global Income Invesco Perpetual Global Targeted Return Janus Henderson UK Absolute Return Lyxor Tiedemann Arbitrage Strategy M&G Dynamic Allocation Man’s Alternative Style Premia Pictet Total Return Agora PSAM World Arb Fund – Event Driven / Merger Arbitrage Fund (Offshore)
Managers Davide Cataldo, Federica Masciaga Mark McKenna Ajay Dravid, Rufus Rankin Jason Halliwell Xavier Morin Paul Reid, Paul Cassy Richard Batty, David Jubb, David Millar and Gwilym Satchell Luke Newman, Ben Wallace Drew Figdor Juan Nevado Simon Savage Elif Aktug Peter Schoenfeld
Top-performing managers in alternatives
Sector: Alternative Ucits – Event Driven
Drew Figdor
Xavier Morin
Alternative ideas have becoming key for fund buyers, but who are the managers excelling in more offbeat areas of the market? We take a closer look at those posting strong outperformance over the past five years in key Alt Ucits and mixed asset sectors
LYXOR/TIEDEMANN ARBITRAGE STRATEGY FUND EB EUR 3-Year total return: 8.80% 3-Year sector average manager total return: -5.1% Citywire rating: The top-performing manager in the event-driven space is Drew Figdor, who joined TIG in 1986 as a senior arbitrage analyst and became a general partner in 1990. In 1993 he became the sole portfolio manager of the Lyxor/Tiedemann Arbitrage Strategy fund. He holds a degree in science from the University of Connecticut and a master’s in business administration and finance from New York University’s Stern School of Business.
3-Year total return: 7.56% 3-Year sector average manager total return: -5.1% Citywire rating: Ranked second across all managers tracked by Citywire in this sector is Xavier Morin, who joined Syquant Capital’s investment team in May 2012, where he serves as co-CIO. Morin has 20 years’ proprietary trading experience in equity and equity derivatives trading. In 1996 he joined Credit Agricole Indosuez as a proprietary trader within the equity derivatives department before being appointed as global head of equity proprietary trading within Calyon’s equity derivatives department.
Helium Performance A-EUR Cap
Sector: Alternative Ucits – Long/Short Equity
Guy Rushton
David Tovey
POLAR CAPITAL UK ABSOLUTE EQUITY I EUR 3-Year total return: 43.85% 3-Year sector average manager total return: 0.9% In the top spot for equity long/short, sitting above 137 managers, is Guy Rushton, who joined Polar Capital in 2014 and runs the Polar Capital UK Absolute Equity fund. This strategy was closed to new investors after breaching €571 million in assets in February. Prior to Polar Capital, Rushton worked at Legal & General and Clear Capital. He read medicine at the University of Cambridge and was highlighted by Citywire Investment Research last summer as one of the rising stars in the long/short equity space.
BSF EUROPEAN OPPORTUNITIES EXTENSION A2 EUR; BSF EUROPEAN ABSOLUTE RETURN A2 EUR 3-Year total return: 33.11% 3-Year sector average manager total return: 0.9% Citywire rating: David Tovey joined Blackrock (then Merrill Lynch) in 1998 as an analyst and has been co-lead on the group’s European Absolute Return fund since June 2017. Tovey has been a popular pick among fund selectors and his European Opportunities Extension fund was hard-closed for two-and-a-half years before reopening for just two months in January 2017. The fund accrued €400 million during this period and was subsequently closed again.
The Alt Ucits space has broadly disappointed in recent years, says Ian Aylward, head of manager and fund selection at Barclays Investment Solutions. Despite the scarcity of outperformers in this space, Aylward has found favourable bets, the strongest of which have been in the event-driven space, with the likes of the Lyxor Tiedemann Arbitrage Strategy, he says. ‘This is because M&A levels have been very elevated in recent years for various reasons, with a good completion rate.’ Elsewhere, the multi-strategy Ucits segment within the multi-asset space has had a particularly tough time, he says. Aberdeen Standard Investments’ GARS fund is a case in point, he adds, which was recently removed from the group’s buy list and replaced with the Invesco Perpetual Global Targeted Return fund. ‘The latter fund had a comparatively strong team and past performance, together with less assets under management,’ he says. Much of the sector’s recent struggles could be down to the huge amount of liquidity that has been pumped into the global economy by central banks. This has distorted valuations so that prices and trades don’t always reflect fundamentals, he says. ‘As liquidity is now starting to be withdrawn, we expect discrimination and intra-stock dispersion to return which should lift performance.’ SLIM PICKINGS Meanwhile, the equity market neutral and equity long/short spaces may have a lot of managers to choose from but only a few make the grade in Ian Crispo’s view. The head of mutual fund selection at Deutsche Bank says it is particularly challenging to find good managers of Alt Ucits products in these areas as opposed to hedge funds. Crispo says he can count the number of good funds with a global approach in equity market neutral on the fingers of two hands, while those focused on Europe offer a better hit rate. One of the reasons for the dearth of good products in this area is capacity constraints. Funds following a global approach are usually domiciled in the Cayman Islands, have a much larger investor base, and are also more flexible and able to generate more fees, he adds. ‘These managers don’t think they need to launch a Ucits strategy.’ CORRELATION CALLS Unlike Crispo, Joerg Schmidt, head of manager selection at Union Investments, says the lower correlation between managers within sectors makes it easier to find well-differentiated equity market neutral managers compared with those in the merger arbitrage space. Schmidt says this is because investors in the latter area are by definition forced to invest in the same universe of announced deals. In a normal cycle, you are likely to have between 40 and 60 outstanding deals in the universe, so there are high chances of overlap between managers. ‘Admittedly, this tells us nothing about their quality, as they might be able to choose the right deals, but there is a limit to the diversification between these event-driven managers,’ he says. Schmidt, who oversees €4 billion in assets in the alternative and multi-asset space, says it is important to adapt your expectations for alpha creation to the type of strategy and sector you are looking at, which in turn influences the number of managers you might select in a particular area. It all boils down to how much diversification each sub-sector offers, he says. For example, the long/short space has plenty of managers to choose from, and Schmidt follows 12 different equity market neutral managers in this sub-sector. The average correlation in the group’s multi-managed portfolios is around 0.04, he says. Meanwhile, he holds just one or two CTA managers, as these tend to chase the same trends and have a much higher correlation. He thinks the fixed income global macro space looks particularly attractive, as managers that are free of any carry are focused on very opportunistic trades in foreign exchanges and fixed income. This is helped by a yield curve which is finally steeper, he says, while less intervention by central banks creates returns dispersion and different yield curves globally, which managers stand to profit from.
This strategy was launched in 2009 and invests at least 60% in shares or derivatives of UK companies. As at the end of July, the fund’s largest long sector exposure was to financials (14.8%) followed by industrials (13.5%).
Launched in 2013, this global strategy invests in securities that are, or may become subject to, a tender offer, merger, liquidation, leveraged buyout or bankruptcy. As at the end of June, the fund’s performance was driven by the broad approach it used to play the outcome of the Time Warner trial decision.
Invesco Perpetual Global Targeted Return
This fund aims to achieve a positive total return in all market conditions over a rolling three-year period. Over the course of June 2018 the managers reviewed around one third of the ideas in the portfolio and added options exposure to their play on selective Asian equities.
Managers: Richard Batty, David Jubb, David Millar & Gwilym Satchell Sector: Alternative Ucits - Multi Strategy
Invesco Global Income
Managers: Paul Read, Paul Causer & Nick Mustoe Sector: Mixed Assets - Flexible EUR
Amundi Funds II – Multi-Strategy Growth
Managers: Davide Cataldo Sector: Alternative Ucits - Multi Strategy
Pictet Total Return Agora
Managers: Elif Aktuğ & Benoît Capiod Sector: Alternative Ucits - Market Neutral
Peter Schoenfeld, CIO and founder of P Schoenfeld Asset Management, targets event driven strategies and focuses on idiosyncratic opportunities to reduce the sensitivity and dependence on market direction.
The Fund invests directly in an actively managed fixed income portfolio and directly, or indirectly through its subsidiary in a diversified portfolio of futures contracts and futures-related instruments, such as forwards and swaps in broadly-diversified global markets.
GMO Systematic Global Macro Strategy
Managers: Jason Halliwell Sector: Mixed Assets - Flexible AUD
Man’s Alternative Style Premia
Managers: Simon Savage Sector: Alternative Ucits - Long/Short Equity
Sector: Alternative Ucits – Global Macro
Loïc Cadiou
Vincent Chailley
H20 ALLEGRO R 3-Year total return: 73.75% 3-Year sector average manager total return: -0.8% Top-ranking Loïc Cadiou has been a fund manager for more than 12 years, and has a seven-year career history as an economist. He joined H2O Asset Management in 2011 and was previously a bond fund manager at Credit Agricole (now Amundi). He graduated from Paris’ Ecole Nationale de la Statistique et de l’Administration Economique in 1992 having studied economics, econometrics & statistics.
H2O ADAGIO, H20 MODERATO, H20 MULTISTRATEGIES, H20 VIVACE 3-Year total return: 37.44% 3-Year sector average manager total return: -0.8% H2O also claims second place thanks to the group’s CIO, Vincent Chailley, who previously headed the global fixed income and absolute performance team of CAAM London. Chailley started his career in 1995 researching capital markets and joined CAAM the following year as an analyst before becoming an investment manager in asset allocation and then global fixed income.
