Risk management focus of Inversis Banco in 2013

Inversis Banco’s Eduardo Anton sees 2013 as a year when selectors will impose stricter risk control mechanisms.

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 (pictured), investment analyst of mutual funds and ETFs at Spain’s Inversis Banco, managers are taking more risks to provide attractive returns.

“It is now vitally important to put in place a stress-test scenario, to identify the sources of risk and predicting the performance of the fund,” he adds.

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

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

At Inversis, the fund selection team is part of the asset management division. The team has four analysts, each responsible for the selection and follow-up of the funds in seven different asset classes. Anton and his colleagues Juan Hernando and Carlos Moreno dedicate most of their time to meetings with managers and providing advice to 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.

‘One-to-one meetings’

“The most important part of the selection process is to meet the fund manager in person. One-to-one meetings help us understand a manager’s investment philosophy and help us identify the sources of returns,” Anton explains. “It is also very important for us to receive quick and complete answers to any queries and a detailed portfolio breakdown if necessary. We expect performance updates every month,” he says.

The selector likes managers who are invested in their own fund. “I believe managers who don’t invest in the funds they manage, could take risks they wouldn’t take with their own money,” Anton says.

Finally, 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 prioritises qualitative analysis over quantitative.

“Our selection process generally starts with a screening of our in-house quantitative scoring, but after that the analysis is more qualitative,” Anton says. “Quant tools are more important to follow-up fund performance rather than for shortlisting. I would say our process is 70% qualitative and 30% quantitative.”

Following the process, the team creates a shortlist of 140 recommended funds.

“This list is flexible. We update it on a monthly basis and it is the approved list of funds for our bankers and IFAs. More than 93% of Inversis Banco assets invested in third-party funds, are in the funds on our short-list,” Anton says.