Crisis reveals consistency in demand, says Feix

The downturn crushed some managers, but elevated others. Daniel Feix is one fund-of-funds manager who feels the slump has been useful for the industry.

It is tough to spot the bright side of the financial crisis. Even so, Daniel Feix, fund-of-funds manager at Austrian boutique asset manager C-Quadrat, emphasises the benefit of the downturn as a severe test for fund managers to show their skill and reveal how consistent they are.

“Fund managers went through a very tough downturn,” says Feix, who is based in Vienna. “The recent crisis sorted the wheat from the chaff. We really look for managers who are able to weather tough environments and outperform not only in bull, but also in bear markets.”

For Feix, the past few years have shown which managers truly deliver alpha, risk-adjusted outperformance: “Fund selectors focus more on consistency now than before the crisis. It is not enough for sales teams to sell a neat story to clients. They really have to show a strong track record.”

One issue that wrong-footed many fund selectors was bull beta managers that outperformed in the 2003-07 bull markets, but suffered huge losses in the subsequent correction.

“Many fund-of-funds managers now keep their hands off this kind of manager, despite the good returns in the last two years,” says Feix.

According to Feix, this appears to be a clear-cut consensus among his peers. One example is the recent history of the flagship fund Nordea North American Value. The fund experienced huge inflows due to stellar outperformance until 2005. But on the back of significant under-performance, the AUM collapsed from $7.1bn to roughly $500m. It has not recovered since.

But C-Quadrat is not the everyday funds-of-funds manager. Many funds employ trend-following strategies. The popular ARTS strategy at C-Quadrat (with €1.99bn) selects the funds via a technical model that, for in part, looks out for momentum in fund strategies and therefore chooses past winners.

“Fund picking doesn’t play much of a role,” says Feix. “We focus on the asset allocation decision and invest in the funds accordingly. The times when we mirrored the MSCI World and alpha was generated by fund-picking are over. We now focus on the asset allocation decision, but part of the outperformance is still added via fund selection.”

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