Four eyes for a fund

Charles-Antoine Bellefroid (pictured) and Vincent Vandorpe, respectively head of Fund Analysis and senior portfolio manager at Puilaetco Deeway Private Bankers, explain the firm’s fund selection process.

Brussels based Puilaetco Deeway Private Bankers, managing €10bn in assets, has belonged to KBL Group since 2004.

Head of Fund Analysis Charles-Antoine de Bellefroid and senior portfolio manager Vincent Vandorpe are part of the 12-strong fund selection team led by Xavier Hanaaertes.

The team, also including research analyst Marie-Charlotte Vasseur, manages a buy list of some 150 funds recommended to private clients.

Bellefroid and Vandorpe each follow between one to three asset classes and work as a duo with a lead analyst, responsible for the selection, and a co-lead analyst challenging ideas.

After running a quantitative analysis through Morningstar databases, the team conducts qualitative research to identify managers, investment processes, resources and styles.

A number of risks are evaluated, such as: diversification, counterpart, leverage, liquidity, and technical.

Regular contacts are established with portfolio managers to assess they still fit with the team’s expectations; for example, it does not select funds with AUM under €100m, in order to avoid unbalanced investment ratios.

A three-year track record is preferred although the team has already recommended younger strategies for new asset classes or managers that it knew had moved.

Bellefroid says the use of ETFs depends of market opportunities.

“If we do not have a strong conviction active managers can outperform the index in their asset classes, we pick an ETF. We also use them in the fixed income area because, in the current low yield environment, lower fees make a large difference.”

Difficulties met include finding active managers that can consistently beat their relevant indices in the US market. That leads the team to combine active and passive US strategies in clients’ portfolios.

Vandorpe highlights eurozone government debt instruments as a perfect example for the ETF play.

“Yields are hardly reaching 0.3%-0.4% with exact same rates for the management fees. In contrast, active management fees for high yield credit or emerging debt are reasonable.”

The team sees demand rising sharply for alternative strategies with absolute return being ever more viewed as a substitute to traditional fixed income in clients’ portfolios. However the selectors also stress a large dispersion in performances between different strategies and the managers of those strategies.

“Overall, the last few years have not been easy, in particular compared to bonds and equities that have performed so well. The overall quality of the alternative Ucits space can therefore be questioned,” Bellefroid suggests.

“I suspect that the high level of demand for alternative Ucits from investors has incentivised some asset managers to develop alternative Ucits solutions in areas where they had little expertise or capability.

“However, the quality of the managers launching new funds has improved over the last few years and we expect that trend to continue. We see more and more pure hedge funds managers being interested in launching Ucits funds to diversify their client base.

“So, the number of funds and their quality is improving. In any case, identification of talents and understanding how and when their investment style works remain the key to a successful selection,” he highlights.

The buy list therefore contains a few arbitrage and equity strategies “that prove to be highly nimble” and that have been able to deliver consistent returns.

In the current market environment, the preference is for Europe and emerging markets over US and Japan equity funds.

Given low interest rates, property at several geographical levels (Belgium, Europe and global) is much liked by the pair.

“On the fixed income side, we clearly favour cash and corporate bonds. There is still a place for absolute return bond funds but we must be very selective.

“As we expect no US recession at the moment, there is also a (small) place in the portfolio for US high yield,” Bellefroid and Vandorpe conclude.

Charles-Antoine de Bellefroid, CFA, is head of Fund Analysis at Puilaetco Deeway Private Bankers since June 2015.

Formerly, he was fund and portfolio analyst within the company between June 2011 and June 2015.
He holds a BA in economics from the Catholic University of Leuven and a master in finance from the Louvain School of Management.

Vincent Vandorpe has been working with Puilaetco Dewaay Private Bankers since 23 years.

As senior portfolio manager, he is managing the own pension fund of Puilaetco Dewaay Private Bankers and several other portfolio mandates.

Vincent has a commercial engineer degree of the Solvay Business School at the Vrije Universiteit Brussels (VUB) in Belgium.

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