Our Fund Selector of the Month is Stefano Torti. Stefano Torti is Group Head of Asset Management and Advisory at Banque Havilland, in charge of the bank asset management and advisory platform. Before that he has been working as a Senior Portfolio Manager in Nordea Bank S.A. in Luxembourg. Stefano is a CAIA and a CFA charter holder and he graduated at Bocconi University.
What led you to dedicate yourself to the financial sector? What would you be doing if you did not find a path in Business?
I have always be passionate about markets, mainly due to the fact that successful investing stands between art and science, and it is an ever evolving universe which never ceases you surprise you. If I would not be involved in the financial sector, I think I would probably choose real estate, which is not that far from it.
What is the greatest challenge as a fund selector?
Finding consistency. The market is full of good products, but the biggest challenge remains consistency of the alpha. Style drift or funds not addressing capacity issues are unfortunately very common problems. Moreover some strategies and styles have limited “shelf-life”, and this is an issue standing outside the product itself that the fund selector needs to take into account.
How is a day to day since you arrive at the office?
Typical day starts with news monitoring and a performance check on the investments we have in our books. The rest is very variable depending on the commercial support we need to provide to the organization or intraday market events. We also run constant due-diligences on new products coming in our radar.
What aspects do you consider most important when selecting a fund for a portfolio?
Two aspects are key. The first is the portfolio construction dimension: how would the product interact with the existing holdings, how would the risk-return profile of the portfolio change and its resilience in volatile periods? The second is the product itself, its alpha potential, fee structure, investment philosophy, risk management and all the other component of an in-depth due diligence.
From the qualitative analysis, what kind of information do you find most interesting?
Investing remains a people business. Even a fully systematic, quantitative strategy, it is driven by the team who creates the algos and improve them through time. It is key to understand the culture of the team and the firm, which is always challenging for an external investor, and it takes time. Usually a firm culture tends to be either collaborative or competitive; both can work well, if they are well managed and related to the right asset class.
Another qualitative aspect we focus is the role of risk management. In some cases it is a pure check-box function, but in the most successful funds it is an active contributor to the portfolio construction, which can neutralize unwanted residual exposures and drive the full expression of active management.
What mistakes are made most frequently in the selection of funds?
Fall in love with a fund or a manager and not mitigating the behavioural biases that every investor has.
What funds do you think will do better in the scenario that has been set up? How does the adequate asset allocation look right now?
We believe the old 60/40 portfolio construction will face an existential challenge in the next 10 years, especially with the latest rates fall in the US. Alternative investments and well-researched new risk premia will be key to generate satisfactory returns in the coming years.
Can you give us an example of an investment fund that you have recently added to your short list?
We have been adding new innovative solution in the private equity space, in order to “democratize” the asset class. It allows non-professional investors to access tier-1 private equity investments and improve their portfolio construction.
What kind of adjustments did you make in the portfolios that you manage, in terms of hedging or risk management?
We have been very active this year in managing our gold exposure. Gold has been a strategic conviction for us for years, but as every investment there is always a tactical overlay that can improve the long-term performance. Everybody in the industry is talking about ESG investments.
Why integrate ESG funds in the portfolios, and, do you see this trendcontinuing or is this a fad?
ESG is a structural trend that is falling victim of its success. The number of ESG funds launched and existing products turned ESG has been staggering. However the risk of “greenwashing” is concrete and there are already few examples in the market. Hopefully also private investors will be able soon to pose the right questions and to identify if their investment is truly green. Impact investing is an area we are looking at very closely as many clients are more interested in investing in something that can “change the world” in a measurable, concrete way.