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Six selectors name their best boutique bets

Citywire Selector uncovers the unexplored seams of talent and smaller independent operators fund buyers are backing.

Digging out hidden gems

Those of you who have attended one of Citywire’s events will have surely encountered the intrigued – and often jealous – looks around the dinner table when a selector reveals a fund that no-one has heard of which has gone on to shoot the lights out.

Whether it is a Greek bond strategy which was held strong through the sovereign debt crisis or a former star manager’s nascent boutique which has started with a bang, asset allocators often cite such discoveries as an example of how they can really add value.

So what recent winners have our selection community unearthed? Having put the question out through our global fund buyers’ network, there is a strong sense that a diverse range of ideas is currently at play within investors’ portfolios. Read on to see which fund types are finding favour and the best locations to start digging.

These comments originally appeared in the November edition of Citywire Selector magazine.

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Alvin Poh

Bank of Singapore (Singapore)

We have been advocating unconstrained bond funds to navigate a rising interest rate environment for some time. These strategies have the ability to dynamically allocate risk across fixed income sectors and actively manage duration risk. Bank of Singapore was one of the early movers to recommend the H2O MultiBonds and Legg Mason Western Macro Opportunities funds.

Both funds have performed well year-to-date and since they were first invested in. Year-to-date ending Q3, both strategies have generated returns in excess of 10%, outperforming the JP Morgan Global Aggregate Bond index.

With elevated valuations across equities and bonds, we favour alternative investments with uncorrelated sources of returns to traditional assets. Insurance-linked securities such as catastrophe bonds can also provide diversification and an income stream that benefits from rising rates. In this area, we prefer the AXA IM WAVe Cat Bonds fund.

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Wilhelm Zehender

VP Fund Solutions (Liechtenstein)

One of the most overlooked areas of the market is the long-term prospects of natural resources, but there are advantages to commodity investing that go beyond the potential commodity price appreciation, such as diversification and inflation protection.

The portfolio managers we select achieve better-than-average results over extended periods and constantly rank among the best managers in the sector. Each chosen fund manager has an excellent reputation and therefore commands the confidence of other market participants.

A good example is the Sunares Sustainable Natural Resources fund which combines the skills and experience of two teams of specialists in London and Austria. The focus is solely on stock-picking without the distraction of hedging currencies and there is neither a derivative exposure nor a performance fee.

The teams have delivered strong performances when commodity stocks were booming i.e. 87.5% in 2009 and 67.5% in 2010. Importantly, the fund has been strong on defensive qualities with, for example, the lowest maximum drawdown of all natural resources funds in the past three years. This is while still delivering a performance in the top five of 35 funds in the peer group.

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Peter Conradsen

Dansk Formue- & Investeringspleje (Denmark)

Our exposure to international equities comprises several fund managers, both active and passive. One unique boutique manager we are invested with is BLS Capital, and we have held positions in this company since it was established back in 2008. BLS is owned by two investment professionals, Peter Bundgaard and Anders Lund, who are required to invest all their investable assets in portfolios managed by BLS Capital.

Both managers are strongly inspired by American investors Warren Buffett and Charlie Munger. BLS Capital offers one fund investing exclusively in Danish companies and another investing globally with no geographic or sectoral limitations. The BLS Invest Globale Aktier fund is concentrated and typically comprises 25 to 30 companies which are selected via thorough analysis and assessment of the companies’ long-term, risk-adjusted return potential.

The selection process emphasises companies with strong business models, stable and substantial cash flows, low or preferably no debt and very importantly, a competent and dedicated management. All companies are followed closely and BLS maintains a regular dialogue with the management of businesses it invests in. BLS has been a consistent performer.


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Carletto Biocalti

Banca del Fucino (Italy)

Our fund selection process starts with a proprietary classification for the various asset classes and a good understanding of the characteristics and style of the different managers. For traditional asset classes, we then follow a customised scoring policy with a qualitative overlay that allows us to identify the best strategies on a risk/reward basis.

We complement this selection by searching for certain approaches that clients want to include in their portfolios, such as: sectoral strategies, particular management styles, investment goals, and decorrelation with traditional asset classes. In this case direct knowledge of the manger, management house and its market vision is crucial.

For example, when it comes to investing in demographic themes, we prefer the Decalia-Millennials fund, which focuses on stocks that will benefit from changes in millennials’ consumer habits.

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Oscar Blanco

EFG Asset Management (UK)

Investors should look to identify quality managers that not only successfully select stocks and/ or themes, but also demonstrate skill in managing a portfolio. The latter point may be equally, if not more, important than the former in these markets. Unique themes or stocks can be ineffective if they aren’t managed or traded with diligence and skill.

The Odey Absolute Return fund, managed by James Hanbury, is a great example. With a unique high-conviction long book, his returns this year have been excellent, demonstrating stock selection, conviction-sizing skill and trading acumen. For Odey, a volatile declining stock, over the medium to long term, can still be an absolute performer and significant alpha generator.

Elsewhere, the KIS Pegasus fund, managed by Federico Riggio, is a good example of a thematic manager. Riggio meticulously constructs special situation opportunities and themes as a core position with various hedges, which led to our analysis of a low stock hit ratio. However, successful stock selection and sizing of the core name, while limiting the hedge losses, results in very compelling win/loss ratios across these themes.

In both these examples the common denominator is under-researched companies. The funds’ performances this year are testament to the managers’ stock selection and portfolio management skill.

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Giorgio Castiglioni

Banca Passadore (Italy)

We work along open architecture lines and our selection process starts with quantitative analysis and then employs a qualitative approach to better understand the management style and who is most likely to perform well in any specific market phase. We also have regular meetings so we can constantly monitor the best in class and discover ‘hidden gems’ in the market.

We take a flexible approach to fund selection and consider asset management boutiques as well as the big firms. We are looking for fund managers who can outperform the benchmark and we usually stick with them if they move to other companies.

Recently we’ve started to invest with Artemis, a UK boutique, in particular its US Extended Alpha fund, managed by Stephen Moore. This is as well as the Pan-European Absolute Return fund, a long/short strategy managed by Paul Casson. Both of these managers joined Artemis from bigger firms.

We’ve also selected the Decalia-Millennials fund, a sectoral equity fund, which invest in global equities from the perspective of millennial generation’s consumer styles. Another interesting pick is the Varioparner SICAV - Sectoral Biotech Opportunities fund, managed by Mina Marmor. We already knew Sectoral since they previously managed a Pictet fund focused on the same theme.

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