Quantity first for BCC Risparmio&Previdenza
Alberto Melzi, who manages funds of funds at BCC Risparmio&Previdenza explains how he relies on a particular approach to quantitative screening to implement the selection process.
BCC Risparmio&Previdenza was established in 1983 as the asset management arm of the Italian Co-operative Credit system, to take charge of pension funds and asset management products of the cooperative bank’s clients.
With some €4bn in AUM, BCC Risparmio&Previdenza offers its clients eight mutual funds; one pension fund with four compartments, eight segments of individual portfolios, and the distribution of more than 800 third party funds.
Products are distributed through the Credito Cooperativo’s network of 400 banks with more than 4,000 branches with a local and cooperative vocation.
Alberto Melzi, portfolio manager of funds of funds at BCC Risparmio&Previdenza, has a very clear and straightforward idea of how
the selection process is to be conducted after being at the firm for over 10 years.
Melzi’s main responsibilities include the definition and implementation of
asset allocation strategies and portfolio optimisation and fund selection of the third party products used in the fund of funds, in the individual portfolios and for the advisory. All this work is done together with the Advisory Team led by David Karni.
Melzi also presents himself as product specialist for the funds managed and distributed (own Italian funds and third-parties Sicavs), supporting sales team in meetings with clients, presenting asset allocation, model portfolios and mutual funds; as well as head of advisory for banks to support the activity of advanced financial advisory for clients.
THE IMPORTANCE OF QUANTITATIVE SELECTION
“The selection process at BCC Risparmio&Previdenza is pretty similar for funds of funds, the sector I am responsible for, and for third party funds selection used in distribution end in advisory, although some minor differences remain,” Melzi says.
“We look at a very wide investable universe of funds, which we select from databases such as Lipper and Bloomberg as well as directly from fund houses. But then we ourselves calculate the performance and risk indicators in order to build our own investable universe by creating some 100 categories divided between equity, bond and total return.
“We then have geographical, sector and style categories, and then investment strategy categories. The next step is to group similar funds and compare them with each other to decide which one is the best,” he says.
As Melzi continues to explain, all funds are assessed on different time horizons, although mainly on a five-year span, and are then assessed through a weighted average in order not to exclude from the selection process those funds which have done well for a long time but might be in a period of poorer performance.
Although BCC Risparmio&Previdenza’s selection process equally values the quantitative and qualitative aspects, Melzi reveals that the quantitative side is crucial to the selection of funds of funds.
“The qualitative side of our analysis basically refines the work we have previously done with numbers and calculations and aims at filling the gaps. After the quantitative and qualitative selection, we move on to doing a qualitative rating and final average and we write up our own rating list, which can differ to that of official rating agencies such as Morningstar and so on,” Melzi says.
RED FLAGS AND MANAGER QUALITIES
Sudden and/or progressive drawdowns and an unexpected change of managers are the major red flags that make Melzi turn the other way from a rated fund. “In general, internal market risks, volatility and strategy changes will make us suspicious,” Melzi says.
As per managers, BCC Risparmio&Previdenza’s process favours those who are able to generate alpha to portfolio returns without adding additional risk. Smart beta strategies, Melzi says, are gaining ground among his clients at the moment.
Asked whether any particular strategy is prevailing, he says that third party funds are more subject to the trends of the moment, while fund of funds’ mostly retail clients keep asking for flexible strategies, such as total and