Leaning against the wind

Market uncertainty makes choosing a fund more challenging for selectors and
advisers. Managers from Millennium Private Banking, part of Portugal’s Millennium BCP banking group, explain their approach to Patrick Blum

The fund management sector suffers from short-termism, according to Mark Dwyer, director of Millennium Private ­Banking’s wealth management unit.     

“People are really worried about performance from one quarter to the next. You see it with fund managers and with companies trying to beat their last quarter’s earnings numbers or to beat the consensus numbers. If you can somehow lean against that wind, it’s beneficial.”    

The unit is primarily responsible for developing the strategy and recommending the products that are best suited for the bank’s clients.

For its recommendations, it draws on a universe of €800m worth of assets in third-party funds, mostly international bond and equity funds with a very small fraction of Iberian products.

To find investment opportunities, a team of ­specialists carries out initial research on targeted funds, looking at their performance over a period of time.

Dwyer says the team looks for funds that have outperformed their ­objective over a whole market cycle, usually between five and seven years.

A more detailed investigation follows to check that the way the fund has developed is consistent with the ­information provided by the fund manager.

“When we’re buying funds, we want them to be doing what they say on the tin,” Dwyer says. “We’re not ­interested in buying a US equity fund that’s investing outside the US, or a US equity fund that is making all its money from investing in small cap stocks. We’re very strict on the asset classes that we go into and making sure that they do exactly what they say.”

Once funds with positive long-term risk profiles have been identified, the next step is to interview their ­managers.

Personal contact is important and it usually means meeting five to ten short-listed managers.

These meetings are used to better understand the processes and philosophy underpinning a fund and that these are sound, “to see that the process is grounded in economic theory and based on something we can understand,” says Dwyer.

This also involves checking that the fund manager’s past performance was achieved by implementing that process and philosophy and was not due to some other factors. Dwyer adds:

“We’re very strict in terms of seeing the ­manager tenure, how long the manager’s been there, how long he’s been working together with the team that ­generated those results in the past.”

He says it is important to understand how a fund’s ­performance was generated and that this was achieved in line with the information initially provided by the fund.


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