Avoid benchmark obsession, says Fideuram Investimenti

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Mario Bortoli, head of the multi-manager unit at Fideuram Investimenti, argues
in favour of an active approach avoiding benchmarks.

Relying heavily on a pre-determined idea of “standard benchmarking” without taking into account broader aspects is way too limiting, says Mario Bortoli, head of the multimanager unit at Fideuram Investimenti.

The firm is Banca Fideuram’s wholly owned asset management arm – itself part of the Intesa Sanpaolo group – and Bortoli has been working there since 2009, following a long experience in fund selection and portfolio management with a particular focus on funds of hedge funds. Banca Fideuram has some €55bn AUM, €35bn of which is in mutual funds, according to industry association Assogestioni data to September 2013.

However, both the bank and asset manager run their business largely
independently from the Intesa Sanpaolo group. Besides Fideuram Investimenti, Banca Fideuram also comprises Fideuram Fiduciaria and Sanpaolo Invest Sim.

“We at Fideuram Investimenti have a different business model compared
to most asset managers, as all our attention is aimed at our network of
more than 5,000 private bankers or financial advisers,” Bortoli says.
The Milan office of Fideuram Investimenti where Bortoli works is mostly focused on fund selection and asset allocation, while other two business units – in Dublin and Luxembourg – are respectively aimed at mono-asset funds and administered Sicav funds.

“Multi-manager here means that we basically do three jobs. We select third party funds; we directly manage investment products focused on third-party funds (funds of funds, individual mandates and unit linked products), for AUM of about €1.2bn over a range of 29 products; and we support Banca Fideuram with analysis and recommendations of third party-funds.”

One of the few asset management companies in Italy that merges the fund selector and portfolio manager jobs, Fideuram Investimenti selects both active and passive funds, which have different roles within portfolios.

“For actively managed funds we pay particular attention to the lead portfolio managers, especially when they manage a fund where the strategy is tailored to them. Managers tend to be less relevant to us when the fund is instead managed by a team,” Bortoli says.

Fideuram Investimenti has an internal buy list of 300 funds, and runs a larger proprietary fund database that has been built over the years by the staff, who bring long term industry experience.

Bortoli says that, although the selection process can be considered a mixture of quantitative and qualitative, it is more focused on the qualitative
side. “On the quantitative side, we analyse all the standard risk/return metrics, while on the qualitative side we pay attention to investment and risk management processes, stability and reliability of alpha generation
in different market conditions,” he says.

Additionally, Fideuram Investimenti favours strategies providing daily liquidity and NAV calculation, however weekly may also accepted if there are good reasons over longer terms.

Bortoli points to style drift as a major red flag, because of it is seen as an indicator of greater troubles. “Style drift is what makes our nose wrinkle the most. Additionally, any form of performance anomaly compared with the AUM history would be a red flag for us. We normally get alarmed if a fund’s AUM doesn’t grow in good periods or if it drops repeatedly, for instance.

“Finally, we would also pay attention to an M&A or a buy-out, which sometimes can be beneficial, but can also distract managers from their objectives,” Bortoli says.

Bortoli feels that, within the industry, sometimes there is an inefficient allocation of time and effort when it comes to managing client portfolios. “Say that somebody comes to our industry for advice on how to invest his money; we all have more or less the same approach to that. The adviser tries to understand his objectives, risk/return profile, preferences etc. and comes up with some sort of benchmark portfolio and possibly some investment constraints.

“From this point, most of the effort is put on beating that benchmark and this is perfectly reasonable in theory but, as always, the devil is in the details.”

As advisers and investors, there are therefore three key objectives that guide Fideuram Investimenti’s work, he says. Firstly, there is focus on beating the benchmark, not least because market conditions may change, undoing reasons for portfolios and constraints previously agreed with clients.

Secondly, it is important to recognise that certain market environments enable active portfolio management to thrive more than at other times. “For example, when markets are driven by sentiment, fundamental analysis becomes almost useless,” he says.

Finally, investors need to recognise that beating a benchmark is not always the priority, and indeed can even create needless dangers.
“The answer? Look at the bigger picture and avoid being stuck in a rigid mental framework.” he concludes.

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