Skandia's Nordic selection


Stockholm-based Jim Rotsman, Skandia‘s head of Nordic Investment Management talks about the context of the local market for funds given Skandia’s global approach to fund selection via its 4P system.

Skandia itself has three fund companies: Skandia Fonder in Sweden Skandia Global Funds in Ireland, and Skandia Investment Management in the UK. Yet, the same fund selection process is applied to all internal andexternal funds for distribution in Sweden, especially those labelled ‘Skandia Link' .

"The Advised Architecture, also called Skandia Link has Sek100bn (€11.1bn) across some 94 funds as of February 2011. In addition, Skandia provides an open architecture with another Sek30bn (€3.3bn) in assets under management."

Long-term processes

"For us it is important to have a complete offering. However, we do not change funds overnight. It is rather a longterm process, but with focus on providing our clients with a complete and attractive fund range."

"Skandia reviews the managers and funds every quarter. But, if there is, for example, a manager change we will meet the fund company in order to understand the impact on performance. The platform is for retail investors but we also have managed portfolios that operate on behalf of retail clients.”

Those ‘Skandia Link' funds also carry a special logo on the platform to identify them to users accessing fund services online. The logo is positioned as a ‘quality assured' mark to differentiate these funds, which helps separate them from the full list of 848 funds Swedish investors using Skandia can access through its website. The focus on product quality in Skandia Link seems to have paid off, according to certain fund market research.

Independent industry newsletter Risk & Försäkring reported that between 2004-8, Skandia beat 12 other companies providing similar services in terms of average investment return over the period. Skandia Link's average of 5.2% over the five years was about 1% better than competitors such as SHB Liv, KPA and Folksam LO, the research suggested, despite the big stock market fall experienced at the end of the period.

Generally customers in Sweden are used to taking on risk. For example, there is a high proportion of money on Skandia's platform locally that is in emerging markets equities - about 20% of assets, Rotsman says.


4P and Matchmaker

Philosophy, process, people, and performance are the guiding principles of Skandia's investment approach.

Philosophy looks at how the manager is seeking to add value. According to Skandia Investment Group "it is not a simple description of philosophy in conventional terms - by growth or value for example. We are looking for a clearly defined philosophy and evidence that it will generate outperformance by being predictive of future share or bond price movements. The stated philosophy must also be suited to the manager's experience and skill sets."

Process looks at how the philosophy is implemented to add value. It should show their practical approach to:

• Research

• Country allocation

• Industry sector selection

• Portfolio construction

• Implementation of strategies (for example, thematic investing)

• Risk control

People looks at whether those involved are sufficiently skilled to implement the philosophy.

"We look for skilled individuals and teams who not only understand investment theory, but also understand the real world dynamics of the markets in which they operate. We look for the right ‘soft' qualities to excel in their role, to learn and develop as the world changes, and to get the most out of the resources at hand."

"Transparency is an important consideration - they have to be open with us if we are to reach an opinion. We are interested in all the people who have an impact on the portfolio, not just the lead portfolio manager.

"Organisational issues are also considered here, as the environment in which the manager operates must encourage effective portfolio management."

Performance is defined as evidence of the investment approach and of levels of manager skill.

"We are interested in understanding performance to test our understanding of the manager's approach, and assess whether the manager is skilful or just lucky."

This requires in-depth analysis of:

• Absolute and relative performance patterns

• Source of performance over time

• Portfolio positioning and trade analysis

• The manager's future investment strategy for back testing at a later date

Matchmaker is the name of Skandia's tool for helping Swedish funds investors seek out the most suitable solutions.

It is essentially a risk evaluation tool, which uses a series of questions to elicit responses on individual attitude to risk, which results in suggested investments.

Thus, where 4P acts as the process whereby fund selection is executed, Matchmaker acts as a pathfinder to assist the investor in finding the most suitable funds from the selection available.