With emerging market debt on the lips of many investors, a top investment professional reveals why he is delving into developing world equities instead.
Selector: Lucas Strojny
Right now we have absolutely no exposure in emerging markets - either equity or bonds - except for one specific mandate, using the Comgest Magellan fund.
We are excited about what they are doing but we’ve decided to start from the beginning, which is doing a full analysis of the universe with our internal quant methodology in order to find new support for investments.
We don’t have any constraints in terms of investments but in Ucits we look at every kind of strategy. In terms of philosophy one thing we never look at is convertible funds.
We are active managers, so we prefer to actively manage any equity risk, credit risk and interest rate risk, instead of having all the risk mitigated in one product. It’s for this reason that we also do not use passive investments.
We are top-down managers and we try to find funds that do risk response to our allocation needs. But in some ways we have a non-traditional core-satellite approach because we are looking for low tracking error funds for our tactical asset allocation.
This is because we consider that our market views have to be the main driver of performance. However for our core allocation we tend to look for higher tracking error, high conviction managers for which we are able to allocate a greater risk but looking for greater returns in the long term.
I fully understand the use of passive investments and why people use them. But we like to select a manager with a specific investment process in order to diversify our portfolio and also have more efficient risk management, that’s why we will always prefer active managers.
An accurate measure and understanding of risk factors, as well as diversification levels, is far more helpful than correlations and asset class weighting.