Deepti Jaju, CFA is the Long-only Unconstrained Fixed Income and Multi-Asset Fund Selector at Pictet WM.
Could you please tell us about the Fund Selection process at Pictet WM?
The rigorous fund selection process at Pictet is anchored on three core investment beliefs: high conviction, long term and selectivity. The process begins with a quantitative screening and scoring of the investment universe, to create a peer group and generate a multi-factor score to rank the funds. This shortlist of potential candidates feeds the comprehensive qualitative appraisal process which is based on four pillars: people, process, portfolio risk management and parent company. In addition, each selected manager/fund undergoes an ESG assessment and scoring based on an in-house ESG due diligence questionnaire and scoring methodology. The lead analyst prepares the documents, assigns a conviction rating and presents the investment case at various internal forums for discussions and brainstorming. Upon successfully completing these stages, the fund is added to the approved fund universe at Pictet Wealth Management.
How many people are in your team, and how is it organized?
The fund and manager selection team at Pictet Wealth Management comprises nine people. The coverage encompasses active and passive funds and is organized by asset classes (equities, fixed income, infrastructure and others) and regional clusters (global, US, Europe, emerging markets, etc.). Our team also boasts a dedicated ESG analyst and a quantitative analyst.
What parts of your role do you find more challenging? And what parts would you say are the most interesting to you?
Given our long-term approach, developing long-lasting relationships based on mutual trust and transparency is vital to fund selection. The most challenging part of my role is to develop the conviction of the manager, which is largely driven by the qualitative assessment of the investment team, the philosophy and the process. We dedicate an enormous amount of time and energy to understanding how the manager produces results, that is its consistency and linkage with the investment process.
In this world, where we are flooded with digital publications, direct interactions with the lead managers and investment teams are the most interesting and valuable part of my job. The discussions, concerns and perspectives shared during these meetings help develop a deeper understanding of the fund, the team and the potential excess return of the funds.
What processes do you have in place to identify a good manager? What are the differences between a good manager and a not-so-good one?
We have stringent qualitative and quantitative criteria to identify and monitor our selected and potential funds. In addition to strong alpha generation skills and sound knowledge of the investment universe, there are certain soft skills which distinguish good managers. We understand that even the best managers will experience periods of underperformance. Still, we highly appreciate those who display humility during such episodes, are fully transparent and do not resort to style drifts or excessive risk-taking for chasing performance.
Do you have any red lines when selecting a fund? Are there any sectors, or themes that you would never invest in?
Given we select managers only where we have high conviction, we refrain from selecting and investing with managers where we discover any issues during the background check. This reinforces our requirement of onsite due diligence and face-to-face meeting with the manager and investment team, although we made some exceptions, due to travel restrictions during COVID in the past two years. Another red flag during the selection process is a style drift which cannot be justified by the investment process and the mandate of a fund.
How are you navigating the current inflation and volatility in the markets?
In line with Pictet’s long term values, quality remains at the forefront while selecting investments for our clients. Within equities, this is manifested via a preference for quality businesses that benefit from pricing power, have sound balance sheet and generate free cash flow. Within fixed income, we prefer high quality investment grade bonds relative to high yield given the current macro environment. As inflation showed signs of being more entrenched, in addition to pricing power theme, we have also been investing in real assets and using volatility tactically.
What geographical areas do you see with more potential for the last quarter of the year?
It is humbling to make predictions in such an uncertain environment. However, we believe that the US is likely to outperform Europe due to two reasons: firstly, the Fed is more advanced in its rate hiking cycle relative to the ECB and secondly, the impact of the Russia-Ukraine conflict is likely to be more acute for Europe, which adds fuel to an already challenging economic front.
What do you like to do when you are not working?
I like travelling, dancing and spending time with my family.
