Silvia Bocchiotti, investment director at LCL Banque Privée, favours top managers with high convictions and experience.
As investment director of LCL Banque Privée, Silvia Bocchiotti leads the firm’s fund selection unit. The private banking arm of Crédit Agricole that targets high net worth individuals posted some €41bn of AUM as of May 2015.
It runs a buy list of 50 third party funds that are regularly monitored, depending on the selection team’s view and market expectations.
The team makes quality a pillar of its selection process. Bocchiotti says the team’s mission is to identify the best of breed managers and build the best allocation between the ones selected.
Preference is expressed for “fund managers with outstanding performances, with a successful and regular track record, promoting clear competitive advantages and high quality risk controls.”
“We seek high conviction and experienced fund managers with a long term investment approach,” she points out. Due diligence, including risk management analysis, is seen as significant. Selected managers are met often.
LCL Banque Privée’s team appreciates those showing consistent availability in order to provide the unit regular in depth and detailed updates of their strategies and portfolios.
Reasons to exit a fund on the buy list include turnover in the management team, repeated and unjustified disappointing performances, and inefficient risk management.
LCL Banque Privée’s current asset allocation gives pride of place to equities because bonds are not expected to reward in a context of rising interest rates and returning volatility.
“We are cautious regarding bonds and prefer flexible fixed income strategies. For us, equities remain the best game in town because in previous tightening cycles, stocks have outperformed bonds and commodities, although volatility has increased.”
“With respect to equities we favour Europe and Japan where earnings are on an improving trend, the economic data is supportive and central banks are quite accommodative,” Bocchiotti explains.
LCL Banque Privée is not exposed for now to emerging markets – either equities or debt. “Emerging markets macro fundamentals are weak and commodity dependent countries have witnessed a sharp slowdown,” Bocchiotti argues.
The selection is currently searching out global equities funds, either blended or thematic.
Bocchiotti stresses clients’ interest in multi-asset funds with low volatility and a capital preservation approach. Most of them remain risk averse since the financial crisis and pay attention to product transparency.
“In France, several ‘patrimoine’ or multi-strategy funds have been very successful over the last few years as they can benefit from significant decorrelation between assets in an environment characterised by lots of uncertainty and increased volatility,” Bocchiotti says. Interest is also high for high income strategies as a substitute to traditional bond funds, she adds.
LCL Banque Privée’s selection team goes for actively managed funds but also looks at funds based on quants or a smart beta approach that have performed well over the recent period.
Index funds and ETFs would be occasionally used for specific asset classes. Bocchiotti explains it allows the company to quickly implement tactical asset allocation movements.
Liquidity risk currently tops Bocchiotti’s list of fund selection challenges.
“We pay particular attention to the potential risk of maturity mismatch in bond funds created by massive redemptions. Recently we have seen some periods of volatility in which liquidity can evaporate in a matter of
minutes creating ‘flash crashes’ in fixed-income, forex and equities markets. The decline in financial market liquidity is especially worrisome in fixed income assets traded over the counter – a potential disruption to markets.
“Even though the Fed is preparing everyone for a change in monetary policy regime, it will take time before investors adapt to this new era.”
Considering that the last hike to the Fed rate took place in 2006, Bocchiotti worries that because the current environment – financial repression, low interest rates, low yields – has lasted for years, many fund managers have not experienced Fed hikes in their career.
Investors should pay attention to adapting their fund selection approach within this new market environment, Bocchiotti suggests, and favour managers with previous experience of monetary normalisation who can manage liquidity risk during stressful periods.
Silvia Bocchiotti is investment director at LCL Banque Privée. She joined LCL in September 2007 as chief investment officer.
A member of the board of private banking unit, she is responsible for asset allocation in discretionary mandates, and the advisory management.
Former roles include senior portfolio manager of funds of funds at Credit Agricole AM (Amundi) and head of the LCL Advisory for third party funds.
Previously, she was in charge of Ucits funds selection at the French arm of Credit Agricole Indosuez Private Banking and managed discretionary portfolio multi manager mandates.