Jonás González (pictured), head of Funds of Funds at Spain’s Liberbank Gestión, explains what he is looking for when selecting funds.
It is not easy to find a fund with the potential to offer differentiated returns compared to peers.
But, as Liberbank’s Jonás González explains, when one is found it makes his day; discovering ‘gems’ among the entire mutual fund universe requires, above all else, sharp skills for qualitative analysis, he says.
“Not everything is a quantitative ranking, scoring, figures… sometimes there’s a fund without spectacular past returns but it might work very well in the future for us. This is why the qualitative phase is so important to me.”
Although relevant, the qualitative analysis is just one step in the selection process at Liberbank’s asset manager, which currently holds €2bn in AUM and some €500m in funds of funds, 80% of which is in third party funds.
ETF FLOWS KEY
When the top-down strategic definition for short and long-term is set, the asset management team defines their market view and where to invest.
“Monitoring the ETFs flows is key to me; ETFs are gaining market share for both institutional and retail investors, and I think tracking these flows is a very interesting tool when making decisions,” González notes.
By asset class and geographically, the investment team decides if they have a neutral, overweight or underweight view, before proceeding to the fund picking and the quantitative and qualitative analyses.
Peer group analysis against benchmarks includes the application of filters to the applicable fund universe.
“In funds of funds I don’t have income funds, but accumulation. I try to analyse the funds that have the same currency within the peer group, so I can calculate returns and risks faster,” González says.
“Then I eliminate all those funds with less than €100m in AUM so I don’t have a significant participation in the fund of funds.
“In regards to track record, we look for funds with at least five years [worth] although I don’t discard those with a lesser track record, providing that the fund management team has more than five years of past performance and the fund beats its benchmark year after year.”
Based on the resulting ranking of funds, González gets in touch with the managers of those funds occupying top positions to look further into the qualitative criteria.
“Qualitatively, I am looking for a ‘junk manager’,” González says, with a sense of irony, “I mean a fund manager rated triple C of Constant, beating benchmarks year in, year out; Coherent and Creative, offering innovative investing ideas that allow decorrelation and low volatility.”
González’s ideal fund manager must be involved with the asset manager’s investment philosophy, while generating alpha.
“When managers hit benchmarks, I want to know if it’s done by a single position or by many small decisions, which shows me that it was not the result of chance,” he adds.
It is also key that the fund manager is located in the region where the main investments are made or the firm has a network of local analysts as “information is power”, González highlights.
González’s team is looking for ideas for decorrelation that contribute to risk control.
Recently, the team of which he is part has been implementing volatility to the firm’s range of portfolios as it is “structurally very cheap, historically”.
“Right now, volatility is not generating returns but it could in future. You cannot invest with a rear-view mirror, you need to look forward,” González says.
Liberbank Gestión’s clients, on the other hand, tend to seek guaranteed or absolute return funds, with low risk in terms of volatility.
“Our clients are quite conservative and, amid a current low interest rate environment, they are shifting from bank deposits to other investment alternatives that generate higher returns,” he concludes.