Fund selection: Understandability in a world of complex strategies
Robin Blokland (pictured) senior portfolio manager Private Clients at German Commerzbank, is like many other fund selectors across Europe facing the challenge of ensuring returns in a low yield environment. The aim is to maintain a balance between strategies with the potential to increase wealth, while being understandable and accessible to his clients.
Based in Frankfurt, Blokland works in a six person team covering the Private Wealth segment. As a relatively small team, the fund selection process is very reliant on teamwork, both with other
departments at Commerzbank and with other asset management teams. In total, Commerzbank manages €12bn in assets, ranging from funds to individual holdings.
While Blokland and his colleagues rely on their in-house research capacities to deduct broader macroeconomic trends, the initial quantitative selection process is conducted by Allianz Global Investors. It is the qualitative step of the selection process, where his team takes over. The more complex the investment strategy, the more important the qualitative aspect of fund selection becomes. “The quantitative screening process works well if you have a
straightforward asset class and strategy – say US equities – but it doesn’t work well if you are looking, for example, at absolute return strategies, because it is harder to have a level of comparability. In thiscase, we need to exercise an in-depth due diligence.”
Blokland takes the view that investment strategies are set to become more complex. ”Due to the low interest rate environment, we consider other options such as alternatives. “One way of doing so is througha fund of funds. But it is also a question of how much risk your clients can bear. “We usually are the driving force for new strategies, but the approach and risk level has to remain understandable for our clients. “Nevertheless, alternative asset classes will increasingly replace fixed income,” he predicts. ”Generally, we are quite conservatively positioned. For example, we don’t invest in hedge funds, but do like absolute return, as long as the funds are Ucits compliant so that we can ensure sufficient liquidity,” Blokland adds.
Another key aspect when choosing a fund is its relationship to the overall portfolio, which aims to combine active and passive strategies depending on asset class and client needs – ranging from a defensive 17% equities to a growth oriented portfolio with 75% equities and 5% commodities. Just as transparency with regard to his clients is key, so too is an open relationship with the fund manager. ”I had a meeting with a fund manager yesterday who is long on peripheral bonds, short Bunds, he immediately acknowledged that it is a crowded trade and presented a clear explanation why he still likes the trade, though with a reduced exposure. “In that case, I appreciated that he was aware of the associated risks” he explains. ”Since the 2008 crisis, we have had to learn how to live with volatility; what matters in the end is that we are able to justify our choices towards our clients,” he concludes.
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