Melding man and machine
Jens Kummer, head of SEB Asset Management’s multi-asset team tells when, and why, to use humans and computers to run funds of funds.
Jens Kummer (pictured) is well positioned to compare mechanistic and discretionary investing. The multi-asset team of SEB Asset Management in Frankfurt, which he heads, invests €600m in both types of approaches.
The €600m of assets are split between, on the one hand, model-driven funds of funds that invest only in ETFs and, on the other hand, multi-asset products that also allocate to active fund managers. There are three basic models: Balance, Defensive and Defensive Plus, with varying asset allocations.
Kummer says some discretionary managers are very talented. However, he says: “In five years‘ time, I would be happy to find the industry has had more sustainable business concepts, less of the boom/bust cycles, and less rotation of managers between companies. Though I am not saying I think I will find that in the industry in five years.
“Also, it is irritating to see so many managers moving. Looking back to the 1990s and early 2000s, there were crises then as well, but the structures of companies were quite stable. Nowadays, there is a lot of coming and going. The changes can be quite significant and irritating.”
One manager at SEB AM in Frankfurt that stays particularly late in the office is a computer, which houses the rules that guide allocation and trading.
Alongside his other two human team members, Kummer appreciates this ‘mainframe colleague’. “Markets at the moment change very quickly, and one main advantage of a quant process is that it does not become greedy or anxious managing money.”
Admittedly, an automated process cannot pre-empt results of Brussels negotiations, for example. But maybe humans are no better. SEB AM’s fund of ETFs did take a 3% loss on European government bonds last autumn because its rules-based approach had viewed the asset class as a ‘safe haven‘. It was stopped out of the trade in November.
Still in “protective mode”, SEB AM has since rotated into global (ex-Europe) debt and money market products, and has 5% in gold. Currency exposure is to Sweden, Norway, America, Japan and Australia.
Kummer says allocators can switch rapidly using ETFs. This is important for SEB AM’s product, whose annualised turnover in today’s turbulent markets is between 200% and 1,000%, depending on the market.