Fund Selection - July/August 2014

Julien Mechler

Chief investment officer, AA Advisors. Based in: Paris, France

“We are currently in a modest economic recovery without inflationary pressures, accompanied by sustained accommodative monetary policies. This environment is structurally favourable to the remuneration of risk. We consider emerging market equities a good investment as absolute valuations are compelling, while relative valuations against developed markets have recently improved. In addition, the tightening cycle in emerging markets is mostly behind us, while currencies are no longer seen as a headwind and reform-driven momentum is gaining pace. So we invested in the Skagen Kon-Tiki fund.”

Peter Fitzgerald

Head of Multi-Assets, Aviva Investors. Based in: London, UK

“While we continue to believe equities offer better returns than fixed income, we have nevertheless reduced our allocation slightly given fears around sentiment and valuations.  We have maintained our cash holdings at 10 per cent and would use any correction to add to positions. We have sold our holdings in the JPM Global Credit fund. This is purely an asset allocation decision as we see the risk reward for this position as unfavourable. We have allocated to the Insight Libor Plus fund which focuses on ABS and floating rate securities to reduce interest rate duration.”

Christian Jost

Executive director and chief investment officer, C-Quadrat Kapitalanlage AG. Based in: Vienna, Austria

“International markets have mainly been driven by the ECB’s decision to decrease interest rates on the main refinancing operations to 0.15 per cent and the deposit rate to -0.1 per cent. We continue to prefer investments in defensive and non-cyclical sectors as utilities and consumer staples. We increased our dollar exposure with investments in US large caps and precious metals. Overall, 30 per cent is invested in non-risky assets with a duration of 4.8 and a yield of 2 per cent and 70 per cent in risky-assets (European small & large caps, Nordic equities, US large caps, European real estate, EMs and precious metals) with a ytd return of 3.4 per cent.

Management selection team

Eurizon Capital. Based in: Milan, Italy

“In May the portfolio rebounded in synch with equity markets and posted an absolute return of 3.15 per cent, compared to a benchmark that was up 3.08 per cent in the month. Our position in high yield and cash was positive in absolute terms, but lagged the performance of government bonds, while our long position in equities was highly beneficial. Best contributors were UBAM Neuberger Berman US Equity Value, thanks to its long positioning in energy, MFS Global Equity and Nomura Japanese Strategic Value. Worst were pretty much all the European equity funds.”

Gary Potter and Rob Burdett

Co-heads of multi-management, F&C Investments. Based in: London, UK

“Risk assets took the lead in equity markets in May, with emerging markets leading the rebound as a number of political events passed without incident, and economic data releases were generally positive. The Nomura Strategic Japan Value fund led the selection, with JPM Emerging Opportunities close behind. The Kames Global High Yield fund made positive ground, but was the worst performer of the selection as coupon payments drove returns in the absence of capital gains. With valuations and markets at high levels we are conscious of the path for progress from here. We remain positive given the economic backdrop but continue to expect volatility.”

Sebastien Bonnet

Head of Financial Engineering, FundQuest, BNP Paribas Group. Based in: Paris, France

“The global economic environment is favourable for risky assets despite high valuations in equities. The current environment with modest growth and low inflation is positive for spread products. These include corporate bonds and emerging market bonds. We have hedged duration risk (the risk of a general increase in yields) and we are neutral on global real estate as well as the three regions (US, Europe and Asia). Fundamentals in Europe are improving, but we take profits after a strong performance since the beginning of the year. We remain neutral on convertible bonds, commodities and cash.”

James de Bunsen

Multi-asset fund manager, Henderson Global Investors. Based in: London

“We replaced the Jupiter Strategic Bond fund with the Pimco Income fund in May. Like the Jupiter fund, the Pimco strategy is unconstrained and can invest anywhere across the fixed income spectrum, but its current positioning is very different. The key difference is the lower allocation to high yield bonds, which we believe have limited upside potential from here and look like a crowded trade. The Pimco fund, in contrast, has little junk bond exposure and instead favours emerging market debt and US mortgage-backed securities, where there remains some value.”

Bernard Aybran

CIO Multi-management, Invesco. Based in: Paris, France

“The balanced portfolio kept the broad balance unchanged between the major asset classes. The only change has been about the asset allocation within equity where, for the first time in quite a while, the geographical exposure was diversified some more. While equity holdings were solely focused on European and US markets, several years of underperformance have made the emerging investment case more attractive. Though major flaws remain in some regions of the emerging world, valuations have come a long way in many Asian stocks and created opportunities.”       

Peter Branner

Global CIO, SEB Asset Management. Based in: Stockholm, Sweden

“The link between our investment process and sudden performance swings is an important part of our due diligence and we particularly look for equity managers with a strong long-term investment horizon in order to disregard short-term noise. In March and April, JO Hambro Global Select had a drawdown relative to the global equity market of close to 10 per cent. As we understand the manager’s investment process we were able to have staying power rather than sell at the bottom. Since then, the fund has recovered and is now back in positive relative performance ytd. Our  conviction remains and we maintain a high allocation to the fund.”