Overheard at Milan’s Forum: Lunch meetings are essential to fund selection processes

Two breaks for a shot of real espresso and a long lunch to enjoy fresh Italian food. During the Fund Selector Forum that Investment Europe hosted today in Milan there was plenty of opportunity for some gossip on the latest trends in fund selection in the country.

While US high yield, corporate bonds, insurance equities and sovereign debt have been the dominant themes in 2012, global dividend and flexible bond funds are set to take the stage in the Italian market over the next months, a delegate said.

Italian investors continue to show a preference for capital protection and liquidity and their appetite for medium to long term strategies decreased sharply over the last months.

As a consequence, from Milan selectors are in search of European boutiques with a strong expertise in a specific niche and their curiosity for less know anglo-saxon names is very strong.

“What is trendy in London now? Emerging markets? Potential for renminbi appreciation? Impact of European regulation on our business?,” were common questions between delegates and fund managers.

In a market where fund selection still relies heavily on the personal relationship, “after a quantitative due diligence I like to go out for lunch with a manager and more than once before I give him my funds” a delegate said, selection processes didn’t change much over the last years.

Most selectors confirmed the use of both quantitative and qualitative tools, combined to take into account the brand of the firm, which produce a shortlist of funds.

The ‘selection mix’ has not been heavily affected by the sentiment in the country, even if since the beginning of the eurozone crisis selectors started to weight more macroeconomic factors.

Moreover, following a year of positive performance for several asset classes, selectors’ eyebrows were raised by potential returns outlined for the next months during the sessions.

Following the presentation of an international fund house at the forum a delegate said: “We expect returns between 3 or 4% in 2013. The funds market is going to become even more competitive.”

Quoting Warren Buffett, another delegate added: “only when the tide goes out do you discover who’s been swimming naked.”

But fund selectors agreed that the scenario in the country is far from negative.

Italian investors are still able to set aside a relevant share of their income, which is often allocated to mutual funds.

Selectors trust managers who “held the wheel” through 2008 and 2009.

“I’ve been selecting funds for my firm since 2006. Managers who went through 2008 and 2009 are now in full control of the situation. And I fully trust them,” a delegate said.

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