Risk control mechanisms to become more relevant in 2013, Inversis Banco

Risk control mechanisms are set to become increasingly important in the fund selection process in 2013, as the flexibility to allocate risk between different kinds of assets according to market conditions becomes more crucial.

According to Eduardo Anton, fund analyst and head of mutual funds selection and ETFs at Spain’s Inversis Banco, in a market environment where is more difficult to search for yield, managers are taking more risk to provide attractive returns: “it’s important to identify the sources of risk putting in place a stress test scenario to predict the performance of the fund,” he tells Investment Europe.

In 2013, Inversis will prefer managers who can provide a global investment universe.

“We believe that the demand for global flexible-allocation funds will increase this year as the dispersion in returns between countries, sectors and assets has became more notorious the last couple of years,” Anton adds.

At Inversis, the fund selection team is part of the asset management division. The team is composed of four analysts, each responsible for the selection and follow-up of the funds in 7 different asset classes. Anton dedicates most of its time to meetings with managers and providing advisory to our institutional clients, bankers and IFAs.

David Sanchez is the firm’s quantitative analyst, in charge of the development of the in-house quant tools used in the selection process. The other two, who joined more recently, are Juan Hernando and Carlos Moreno.

“The most important part of the selection process is to meet in person with the fund manager. One to one meetings with a fund manager help us to understand his investment philosophy and to identify the sources of returns in order to be sure that the performance is consequent over the time,” Anton explains.

Secondly, selectors ask for transparency.

“Is very important for us to have access to the product specialist or fund manager to receive fast and transparent answers to our queries and the detailed portfolio composition if it’s necessary. Receive the monthly update on time also is important,” he says.

Thirdly, the team takes into account quantitative ratios, mainly focusing on the maximum drawdown, Sharpe ratio and downside deviation.

The importance of quantitative indicators has not increased in 2012, Anton adds, as the firm prioritizes the qualitative analysis over quantitative indicators.

“Our selection process generally starts with a screening of our in-house quantitative scoring, but after that the analysis is more qualitative. Quant tools are more important for us to follow-up the performance of the funds rather than to select them for our short-list. I would say that our process is 70% qualitative and 30% quantitative. We are in constant development of new tools that help us in our selection process,” Anton says.

A complete interview with the fund selector will appear in the next issue of the magazine.

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