Allfunds adds Tobam and Nordea to ‘Insight List’

Two new funds have recently been added to the Allfunds Insight List of recommended funds by analysts Chetan Modi and Vanesa del Valle Broussard.

These funds are not widely known or recognised, but the analysts consider them to be ‘hidden gems’.

They are the Tobam Antibenchmark Fund US Equity (UK Equity has also been included) and the Nordea Emerging Market Bond, managed by Pramerica IM.

Tobam Anti-benchmark Strategies

Chetan Modi, Senior Equity Fund Analyst Allfunds, comments: “We believe Tobam’s Anti-Benchmark approach offers a differentiated exposure to US and UK equities. The strategy attempts to avoid the implicit bets in a traditional market cap-weighted indices by building a portfolio of stocks that are as diversified as possible, using a proprietary method which is patented and ensures the strategy’s competitive advantage is sustainable.

“The strategy is run and supported using a team-managed approach, so key individual risk is somewhat mitigated.

“There is also good capability within the team, which is important as they all contribute towards theoretical support or implementing new ideas that constantly refine the process.

“This firm-wide approach has led to attractive risk-adjusted returns over the long term and the funds have typically fared well in periods of heightened volatility.
The team has been remarkably stable over time due to the company’s ownership structure.

“The founder, Yves Choueifaty, is the majority owner but the balance is split between employees and minority shareholders CaLPERS and Amundi.

“We believe the ownership structure of the firm has been crucial in promoting stability amongst the investment team as it enables all staff to gain ownership and it also helps align their interests with investors’.”

Nordea 1 Emerging Markets Bond (High Conviction)

Vanesa del Valle Broussard, Senior Fixed Income Fund Analyst Allfunds, comments: “The fund is externally run by the Emerging Markets Debt (EMD) team at Pramerica Investment Management, a large, stable and experienced team with extensive resources which includes 21 dedicated portfolio managers, analysts, economists and traders.

“The two lead managers, David Bessey and Cathy Hepworth, have ample experience managing EM debt, having co-founded the firm’s EMD business in 1996. The team enjoys being part of a well-resourced firm, while maintaining the decision-making flexibility and speed of a team focused exclusively on EMD.

“Although the Nordea 1 Emerging Markets Bond fund was only launched in May 2012, the Pramerica EM debt hard currency strategy has been in place since 1996. The strategy relies on country allocation as the primary determinant of EM returns.

“Security selection, derived from proprietary analysis, is another primary alpha-generating factor.

“A dynamic risk budgeting process provides a consistent and disciplined framework for investment decisions and risk management. Within the EMD Hard Currency Sovereign fund universe, the Nordea 1 Emerging Markets Bond fund is one of the purest strategies, generally avoiding local currency or EM FX risk exposure, even if allowed up to 10%.

“This contrasts with most competitors, who invest tactically in local currency debt and currency markets as an additional source of alpha.

“Within external EM debt investments, corporate exposure can be high, but is generally below the level found in other funds using the JP Morgan EMBI indices as their benchmark. Exposure to corporate debt in the Nordea fund averages around 10%, reaching 20% only in rare occasions.

“The Nordea team includes seven dedicated EM credit analysts, well above average in the sector. Most noteworthy is the fund’s lack of exposure to derivatives, which are widely used by most competitors in this space.

“On a quantitative level, the fund is very attractive relative to Fixed Income Emerging Markets Hard Currency peers, both on a return and on a risk-adjusted return level. It has delivered very strong consistent returns over the years against the peer group index and particularly against its competitors.

“On a cumulative basis, the fund has outperformed the peer group JP Morgan EMBI Global index, net of fees over one, two and three year periods, delivering top quintile returns over two- and three- years, and second quintile returns over one year.

“By calendar year returns, the fund has outperformed the peer group index and delivered top quintile returns every calendar year since inception. The fund tends to perform best during strong market rallies, taking advantage of market sell-offs to buy into the market. During negative market environments, such as 2013, 2011 or 2008, the fund has struggled, although not relative to the peer average.”

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