A no-nonsense approach to fund selection

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Conrad-Jan Crol is director, researcher and fund selector for the Dutch family business Amstel Capital Management, who advocates a no-nonsense approach to fund selection.

“Niet zeuren maar doen” is a Dutch expression which translates roughly as “don’t make a fuss, just do it” and good description of Conrad-Jan Crol’s approach to fund selection.

“The expression ‘past performance is no guarantee of future results’ is nonsense of course,” says Crol. “Of course there are always fund managers who consistently outperform the market. Just as [Lionel] Messi will always be a better football player than me.”

In other words, the personality of a fund manager is a key aspect to his investment decision. “You can set up all sorts of rules but in the end it is the fund manager who has a sense for the key decisions, spots the risk and knows when to go underweight. We do have a quant fund but in general we prefer to know the guy who is pressing the buttons,” Crol says.

In order to track down new funds, Amstel Capital uses a combination of databases such as Morningstar, as well as networking solutions such as Brighton House, and he also recently attended the InvestmentEurope Pan European Fund Selector Summit in Lausanne.

Amstel Capital has seen a significant change in portfolio allocation as a result of the financial crisis and the persistence of low interest rates. The majority of its investments are now in equities.

“On the retail side, we do come across people who prefer to keep sovereign bonds in their portfolio. In that case we would advise them to look around elsewhere. We do have some exposure in emerging market currencies and emerging market debt.

But for government bonds in the US or Netherlands, which offer a return of 1.5% or 2%, at a time when the inflation rate is above ??%, there are better alternatives. “I think that there will be severe problems in government bonds. Perhaps not now and not over the next two years, but they will come,” argues Crol.

What then are the alternatives? “Prior to the last recession, we used to have exposure to funds of hedge funds, which is where we took most of the hits during the crisis, so we have completely stopped with that. Pure main exposure is now to equities long short and credit long short.”

“The trouble with funds of hedge funds is that you also have to analyse all the underlying funds, and if you have to do all that research, you might as well invest in that underlying fund directly” says Crol.

He is also concerned about the effect of derivative strategies, in particular Ucits hedge funds, which use derivatives to provide daily liquidity. “If the problems of 2008 reoccur, and perhaps on an exponentially bigger level, we think Ucits funds would be suddenly closed and unable to provide sufficient liquidity to cover everyday business.”

“Because you are exposed to the risk level of the banks and after Lehman I don’t want to deal with that,” he stresses, adding that he only accepts short exposure to derivatives used by the hedge funds themselves.

“We try to select products we understand, because there are now quite a few sectors which have bubble potential, for example biotech. We prefer products that are less sexy, for example companies producing elevators. A large part of their profits is in safety inspection that is something that will not be cut back anytime soon,” he concludes.

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