For skilled portfolio managers the European equity market still offers plenty of opportunities to create alpha. Among European Equity fund peers we particularly like one active and systematic fund. The strategy used to be managed for an institutional client, sole holder under a UCITS format with a 10 years track record. This pension fund decided two years ago to withdrawn assets to launch a more efficient fiscal wrapper via a segregated mandate. Consequently, the fund experienced a significant drop in Net Assets, but continues to exhibit unrivalled track record. The strategy has roughly 30 millions EUR but is growing nicely since the beginning of the year. We added the fund to our Watch List and will monitor the size for further inclusion in our Selection Master List later this year.
Well established manager
The Asset Management Company has over 35 years of experience in global quantitative equity management and it has been managing European equity mandates since 1999. The company is located in the US, East Coast and specialised in active management based on multi-factor analysis within a systematic framework.
The Investment Team offers exceptional global experience gathering among the best professionals in their field and it is structured around four main groups: Portfolio Management, Research, Portfolio Construction and Trading, and Data.
Investment philosophy
The Investment Philosophy tries to exploit market inefficiencies and behavioural-based mispricings. To achieve this goal, the fund uses a systematic and rigorous evaluation of quantitative data which aims to generate a predicted market relative return forecast for every single stock in the European Equity universe. Risk and transaction costs analysis are also an important part of the process.
Quantitative factors
The return forecast process begins with a quantitative assessment of all European stocks simultaneously from a bottom-up and top-down perspective. At the individual stock level, the Investment Team uses a range of more than 70 quantitative factors focused on valuation, earnings, quality and price momentum to predict how each stock will perform relative to its peers.
At the top-down level, they utilize factors related to valuation, risk, growth, technical and macro indicators to attempt to predict how the stock’s peer group will perform relative to the European investment universe.
Then they combine and weight factors to determine a return forecast for each stock. The result of this process is a ranking of stock universe from most to least attractive companies. Stocks forecast combined with transaction costs flow into a portfolio optimisation system to trade-off risk targets and returns.
Competitive edge
Key competitive edges of the strategy lie in the advanced statistical modelling techniques, the thorough and well-designed data infrastructure and the rigorous risk control. Further to the return forecast, the strategy is also diversified by accounting for diverse time horizons over which, and how well, factors are expected to pay off.
The process is objective, rigorous and disciplined. Expected returns are evaluated three times each 24 hours for every stocks in the universe to incorporate the most recent information into the fund.
The strategy showed an above average ability to adapt to changing markets. The process dynamically weighs the portfolio’s exposure by including forward looking factors to identify changes in the market sentiment.
Attractive portfolio
The fund is a strong conviction within the European Equity funds and it will be closely monitored going forward. Given the size of the fund, it also benefits from very attractive management fees in order to grow the strategy, with the retail share class being charged the institutional management fees.
Performance
The long track record of the strategy also exhibits excellent risk-adjusted and asymmetry of returns, good downside protection and responsiveness to changes as stated above.
