by Detlef Glow.
The funds and fund promoters that were awarded with a Refinitiv Lipper Fund Award in 2021 had to cope with rough market conditions, especially over the three-year period from January 1, 2018, to December 31, 2020.
Investor sentiment in 2018 was mainly driven by discussions about a possible trade war between the U.S. and China and a possible return of the Euro crisis caused by the political developments in Italy and France. In 2019, the harsh communication around the negotiations on tariffs between the U.S. and China kept fears about a possible trade war between the two largest economies in the world alive. At the same time, the fears about a new Euro crisis faded away, while a looming hard Brexit put some pressure on the growth expectations of corporations and economies in Europe. In addition to this, further rate cuts in the U.S. led to some concerns over the shape of the U.S. economy.
Looking back on the year 2020, it can be said that no investor has seen such a year before, even if one looks back to the Great Depression or World Wars I and II. The year started off with fears about a possible war between North Korea and the U.S., an upcoming trade war between the U.S. and China, and a possible hard Brexit. In a normal year, these geopolitical tensions would have put enough pressure on the markets to cause a major downturn. But in mid-February the coronavirus, which has been seen as a local problem in China before, was detected in more and more countries around the world and finally caused the COVID-19 pandemic.
Graph 1: CBOE SPX VOLATILITY VIX (NEW) – PRICE INDEX (January 3, 2011 – December 31, 2020)
As a result, governments around the globe closed their borders, economies, and societies to prevent the spread of the virus. These lockdowns led to a major downturn in the equity markets in March and an additional sell-off in other liquid assets as investors wanted to protect their money. Within these market conditions, the price for oil went below zero for the first time in history.
Governments around the globe not only introduced lockdowns, they also released fiscal stimulus packages to support companies and residents, as well as to cushion the expected economic downturn. In addition to these relief packages, central banks around the globe restarted or increased their quantitative easing programs to keep the liquidity in the markets up. Altogether, the amounts that have been spent for all the relief packages from the different institutions globally reached a level that has never been seen before. As a result, the securities markets returned in general to a normal pattern, while equity markets around the globe rallied and hit new all-time highs.
Graph 2: Performance Lipper Global Equity Global Sector Average (January 2, 2018 – December 31, 2020)
Source: Refinitiv Lipper
Taking these circumstances into account it is clear that resilience and courage, or in other words a robust investment process with a sufficient risk management system, were key to weather the rough markets and to win a Refinitiv Lipper Fund Award in 2021.
Read below what some of the winners of a Refinitiv Lipper Fund Award 2021 are saying about the resilience of their funds and investment processes:
Arnd Seybold, Head of Wholesale Business development Germany & Austria, Aberdeen Standard Investments Deutschland AG
“It is [our] focus on investing in high quality businesses where the volatility in earnings and cash flow is far less pronounced than the rest of the market. This is often because their earnings power is driven by powerful structural trends which drive far more attractive through-cycle growth than the underlying market. Over long time periods it is earnings and cash flow growth—not multiples—which drive returns, and it is our single-minded focus on this which has allowed the fund to remain far more resilient than the market and peers.” … “As a result of this unrelenting focus on investing in quality companies, the fund often outperforms or keeps pace during periods of very strong market returns, while also proving far more resilient during weaker periods for markets. 2020 was a particularly volatile year—however it was this blend of downside resilience and upside capture which allowed the fund to outperform.”
Jeff James, Lead Portfolio Manager of the Heptagon Driehaus US Micro Cap Equity Fund
We believe that flexibility will be important to continue generating outstanding results. Our diversification across different stages and types of growth profiles is critical to navigating a market with many industries being rapidly disrupted by technology while an early-stage economic recovery takes hold in others. This flexible and differentiated application of growth investing equips us to identify attractive opportunities in all parts of the market cycle.
Emanuele Gerletti and Francesco Vicino, Portfolio Managers at Swan Asset Management SA
In our opinion resilience in volatile markets can be achieved through diversification—extreme exposure to single names/themes is a serious threat to a resilient performance during risk off periods. In addition to diversification, fundamental credit analysis is an essential part of a solid investment process—it firstly protects the portfolio from huge losses and secondly allows to select the best opportunities that always arise in these periods. We applied these principles to Swan Short-Term High Yield, investing the fund in 120 different credits on average and generating very low credit losses thanks to a careful selection.
Justin Oliver, Deputy CIO and Lead Fund Manager on the CGWM Affinity Fund, Canaccord Genuity Wealth Management
“In 2020, we recognized at a very early stage that the significant stimulus being applied by governments and central banks in the face of the coronavirus pandemic would push equity markets significantly higher. We also predicted that the leaders in this environment would likely be technology stocks (driven by being a clear winner of the work from home/stay at home environment) and ESG-related investments, which have a secular tailwind of increasing investor focus.” … “We are constantly vigilant with regard to risk, and a focus on resiliency should never just occur during, or in response to a crisis or volatile markets. If you only worry when you feel you have something to worry about, you are probably too late.”
David Letellier, CEO, Head of Asset Management, Actis Asset Management
“Our active and flexible process complies with the typology of our particularly risk-averse investors. The definition of a central scenario (evolution of the fixed income and equity markets) is the first step for the overall allocation of the fund between the two main pockets: long-term yield pocket (Corporate Investment Grade) plus [an] opportunistic pocket (High Yield, Convertible bonds, Subordinated Debt, Equities, Currencies, Gold, etc.). Then, the manager determines the allocation of his opportunistic strategy. Everything will depend on the risk premiums of each asset class, their correlation, fair value, etc. The team then covers the risks through derivatives. Alterna Plus is not a Bonds/Equities allocation fund, but a diversified Absolute Return fund seeking to limit its volatility. The management team seeks above all to obtain the best performance-risk ratio over time. The prudential approach makes it possible to increase cash in times of rising markets, in order to invest in times of crisis.”
Alexia De Roquefeuil and Sébastian Lalevée, Financière Arbevel
“Pluvalca Initiative PME has had the same investment process since its start late 2012. It can be summarized with few words such as conviction, long-term view, management and leadership as a key criteria.” … “We consider ourselves as long-term investors. As such, we cherish strong governance. Long- term views help you holding up during high volatility periods, as you don’t lose your compass and strong governance put an emphasis on environmental and social issues.” … “Having a long-term view and a clear investment case and target price per holdin [helps keeping portfolio performance resilient in volatile markets]. If the market does not go your way, it does not mean you are wrong as long as your initial case is intact. On the other end, having several analysts and two co-managers of the fund help avoiding groupthink.
The views expressed are the views from the authors, not necessarily those of Refinitiv.