Credit Suisse's Giuseppe Patara outlines the firm's selection process highlighting the relevance of the macro factor as the building blocks on which selectors should base their allocations.
Patara believes that fund selectors should always start by looking at macro matters when performing their asset allocation because that will define their risk appetite.
As a portfolio manager, director and fund selector at Credit Suisse IM - which currently manages over CHF60bn and present in nine locations across Europe and Asia - he is responsible for managing an unconstrained multi-asset strategy while being part of the global fund selection group for discretionary portfolios.
As part of the asset allocation team of a global fund house, he explores all asset classes and geographical areas.
"One of the key characteristics of our process is that all fund selectors in the group are also portfolio managers. As such, we tend to consider all funds in a portfolio context, not just on a stand-alone basis," he says.
"I am constantly looking at the best way to express an asset allocation view in a portfolio, seeking to find the most suitable vehicle to do so."
This openness implies the manager considers the overall range of investment opportunities, from passive - ETFs and indexed funds - to active strategies.
"The expected length of any investment view, and the level of efficiency of the asset class are the key factors we take into account when selecting the most suitable investment instrument, whether active or passive," Patara explains.
Patara explains how his team's aim is to select the best risk adjusted fund strategies for their clients. And to do so, they run quantitative screenings at peer group level, and apply a scoring system that rewards equally performance and relative risk parameters.
After the quantitative analysis, they look at the strategy with more details and the replicability of past performances. During this qualitative process, direct contact with fund managers might be needed.
"We tend not to invest in a fund without having met at least once the key decision makers. most of the managers we invest in, we have been establishing a direct long-term relationship. Having the global selection team spread across nine regions globally helps in this sense, " he states.
When referring to the key attributes he likes in managers, he admits to focusing on those who have been able to outperform their mandate benchmarks consistently in various market environments.
Another essential characteristic to Patara is coherence. Fund managers must be consistent regarding their historical performance and their declared investment process/philosophy.
"When analysing past performances, we want to find some evidence that they are coming from a replicable investment process and not from one-off trades or temporary style drifts.
In most of the fund houses, it is easy to spot a top performer that has actually drifted from the investment universe or simply took a concentrated lucky bet on some investments. Chasing those managers could be really dangerous," Patara warns.
FOCUS ON FIXED INCOME
Patara is paying special attention to the fixed income universe given the low level of interest rates of government bonds and the decision of central banks to maintain real rates low over a long period.
In this sense Patara adds: "All types of ‘spread' investments that have been used historically as satellites (high yield and emerging bonds for instance), are likely to increase their weight in allocations."
SLUGGISH GROWTH AHEAD, BUT NO RECESSION
Patara thinks that although short term indicators are likely to improve from their current depressed levels, there are still reasons to be bearish about global growth in the medium term. "Tightening financial conditions, widespread recession concerns, fading global auto sales, and weak energy investment suggest that the global growth trend occurred from mid-2016 until early 2018 is over and that we are set for a year of sluggish growth, but no recession.
"Labour markets in developed economies are still resilient despite weak manufacturing and volatile financial markets. Policy makers, the Fed, and the ECB in particular, are coming more dovish in response to this weakness."