Value investing first
Wim Antoons (pictured), who oversees Nagelmackers’ fund selection, opts for value investing funds on the equity side.
At Nagelmackers, formerly known as Delta Lloyd Bank, head of Asset Management Wim Antoons leads a team of six in the fund selection unit.
Some €2.3bn of assets are currently managed, with funds selected for an investment duration of one to five years in a list that comprises nearly 80 products.
Antoons says the team has no particular bias on managers selected, but tends to invest in funds with a minimum of €50m of assets under management even though this cap can be lowered.
A three year track record is preferred, but is not a necessity. “We have even seeded funds in the past,” Antoons says.
“We target mostly investment boutiques that are independent. Overall, what we seek most importantly is managers delivering alpha on the long run.”
On the equity side, all funds picked up are actively managed with a preference to regional equity funds, although the buy list carries a number of global equity strategies.
All fixed income classes are covered, while the relevant funds selected can be either active or passive.
Additionally, the team’s list contains real estate funds and some long only alternative solutions such as hedge funds that offer noncorrelation to other portfolios.
“Our selection relies on a buy and hold approach. Our philosophy on the equity side remains value investing.
“We have a very low turnover because we have picked managers who select cheap stocks. The turnover for equity funds on our list is no higher than 10% per annum.”
“In the fixed income area, we used to have govies and corporate bond funds, but a broader diversification has emerged towards adding high yield bond, EM debt and convertibles funds to the list,” Antoons comments.
Another peculiarity of Nagelmackers’ buy list is that some 70% of the funds are SRI compliant.
“It does not represent an obligation, but when we screen funds we observe ever more managers applying ESG criteria to their investment process.”
“If clients want a 100% SRI compliant portfolio, we can easily build it for him. That was impossible a couple of years ago. The demand for those products is higher now,” Antoons says.
Low turnover of investment teams remains a key criteria sought by Nagelmacker’s selection team.
Antoons insists managers must comply with a valueoriented management philosophy – otherwise, it is a red flag. So are high turnover and poor performance over long periods, and changes in the management of a fund.
The selection team also appreciates managers themselves investing in the funds they run.
“The total expense ratio of the fund remains a crucial factor we take into account. TER should not be too high, or if they are more expensive compared to the peer group we must ensure the manager effectively delivers alpha.”
Antoons has observed active managers lowering fees over the past couple of years. A 2% fee remains a high price to pay, he says. “For us, the upper limit narrows to 1.5% even if it must not be considered as an absolute figure.
It depends how much skill the manager has. Overall, we spot downward pressure on fixed management fees and we monitor that closely,” Antoons adds.
At the start of 2016, Nagelmackers’ fund selection team expressed a preference for equities rather than bonds.
“We focus on European stocks because of their cheap valuations and other factors including momentum, a cheap euro and declining oil prices. On top of that, monetary policy is a supporting factor for stocks,” Antoons says.
The unit has reduced its exposure to high yield bonds in the aftermath of the US Federal Reserve rate hike because it sees “less liquidity going forward and difficulties in US high yield bonds,” referring to the US energy market.
Exposure to China has been limited because market valuation of Chinese assets “does not match with our value investment philosophy,” Antoons adds.
Meanwhile, the challenge remains of investors perceiving actively managed value investing as underperforming.
“We tell clients that the current low rate environment makes it difficult to reach 5-6% returns. We still meet clients who think they would gain such returns with a conservative portfolio over the ten coming years. That in our opinion is not going to happen.”