Opportunism and pragmatism
La Française’s CIO Cross Asset Joël Konop selects funds with a mid-long term view. But strategies remain flexible.
Joël Konop is chief investment officer Cross Asset at La Française. Based in Paris, his team has around €6bn of assets under management, of which half come from fund of funds. Overall, La Française AM has some €48.3bn of AUM as at 31 December 2014.
All funds are actively managed. Views of the Cross Asset team are on a mid-long term when investing in a vehicle. “We are not investing in a fund just for two months, except in case of exceptional circumstances if some market conditions require it,” Konop says.
Both quantitative and qualitative approaches are used for the fund selection process. “We are also opportunists.
We know some funds, managers come to us and we look at how their funds perform in a single universe.”
“Even though a fund can perform very well on the quantitative side, you have to check how it is really performing. Quantitative is vital but we look also at the qualitative, the process, the strategy approach,” Konop adds.
Recently, work has been done on bond fund selection, since a number of products have been launched due to the low rate environment.
“Consequently, the fund selection was more intense and interesting, because we find back on the bond picking what we have not found for years on the stock picking in Europe,” Konop observes.
This year has also seen a reallocation to the European equities market at the expense of the US equities market.
“We consider that there is still potential in the European market but that won’t be a straight line. So we may slow down a bit on the European equities market and wait for signals from the Fed,” he explains.
According to Konop, yield can be found currently in high yield bonds and still on European peripheral debt rates “although the yield there has dramatically decreased.”
“We may look at high yield in the US as well as at emerging markets debt rates. Convertibles offer good perspectives too,” he assesses.
Regarding emerging markets, La Française AM Cross Asset strategies remain “a bit away” from them as “flows are still uncertain and fundamentals not so robust.” Moreover, the prospect of a rate hike by the Fed leads Konop to think that “flows will not boom in this market.”
The team also invests in futures and trackers, although they prefer the latter because of “some dangerous biases” that can be seen in futures, Konop argues.
US and European equities managers form the basis of La Française’s Cross Asset portfolios. If carte blanche is
given to managers for the stockpicking, Konop cares about having a global view of their strategies.
Konop defines two types of fund managers in the Cross Asset team: “On the one hand, we have managers running a core management approach in order to generate alpha; and on the other we have more atypical managers with a core-satellite approach.”
He lists transparency and communication as key competences of managers.
Also, they should be able to demonstrate resistance in their portfolios and a constant process, while “changes in the fund management and managers transforming their process in order to improve a disappointing performance” appear “suspicious” to Konop.
Among red flags for funds, Konop looks to eventual fines from regulatory authorities threatening the vehicle, and he seeks to determine if the assets under management have dropped as “that could have an influence on liquidity.”
“Another red flag would be a performance which is not be the one promised by the manager or a manager who is not acting in the market like he should do,” he says.
However, Konop shows pragmatism. “If a fund does not perform, we will not remove it immediately, but we will try to understand why before removing it.”
It will be removed if there is a change in process, or when the strategy in no longer in line with the asset manager’s philosophy.
As a major development to happen in the industry, Konop foresees that internet companies like Google and
Yahoo will soon launch fund selection activities.
“They are everywhere, why would they not be present also in this sector? The channels of distribution can
change but the service will remain. It is up to us to make the difference on the service,” he concludes.
Joël Konop has 27 years of investment experience. He has been working for La Française AM since March 2000. He was appointed CIO Cross Asset at La Française AM in February 2014. Formerly, he was head of the diversified fund of funds team and portfolio manager of funds such as LFP Patrimoine Flexible.