As passives continue to push through, how are selectors combatting the ever growing divide between activelyly managed funds and ETFs? In this edition of ‘Selector Snapshot’ one investment professional reveals how he is tackling the passive threat.
Selector: Wim Antoons
Company: Bank Nagelmackers
For us, the biggest challenge is to keep a focus on active managers, definitely in terms of equities and not to drift towards passive investing.
We do not invest in market-cap-weighted indices because they become more expensive as prices rise and it’s extremely important to look at the fundamentals.
We don’t want to invest in equities that are really overvalued, for us that's really a big issue. The second challenge is regarding fixed income because it’s so expensive.
We have lowered the weight of govvies and corporates, which have all become quite expensive. Therefore, we try to hedge both interest rate and lower duration risk, as well as drifting towards alternatives.
Going forward, passives will be popular, but just because of the price. However, when the market goes more towards of a focus on fundamentals then that is the time to go towards an active manager.
What we like is for a fund manager to really look at the fundamentals of stocks and passive investors just include a stock because it’s cheap or is smart beta, for example, not because the fundamentals are good.
We are in a market where everything is rising, fixed income is rising and all equity prices are rising. But, we think once the markets starts to once again look at fundamentals the focus will shift towards active management and not passive management.
We are not really playing on asset allocation, we have a strategic asset allocation and we stick to that. We are not going to overhaul the portfolio but instead retain a low turnover rate.
We are overweight in emerging debt at present, while being underweight US has also helped a lot but we are not going to play around heavily in our portfolio.
We have been underweight US for a couple of years, which went against us last year. But this year it has helped because the dollar weakened a lot versus euro.
However, you’re not always right at the right time, for example. We could have played US equities and hedged away the currency risk which would have been a good bet but normally we don’t hedge.
Looking back in hindsight is always very easy to say we could have done this or that, but we don’t like to do that.