Vincent Morel is our Fund Selector of the Month. Vincent Morel is in charge of fund selection at Financière Arbevel, and manages the open end fund of funds Pluvalca MultiManagers as well as dedicated funds and discretionary mandates. Vincent has a 14-year experience in financial markets, starting his career in 2006 as a sell-side equity analyst at Citi before joining the French boutique in 2010.
What do you think leads to success in the business industry? Can you give some unique advice for people starting a career in asset management?
Curiosity is very important in fund selection. We always consider every investment opportunity, and we try to remain open minded and flexible in order to grab new ideas. We do not hesitate to incubate new funds, because we believe that a manager has the ability to generate more alpha when the size of the fund remains limited.
This philosophy also enables us to differentiate ourselves from competition. Many family offices have pointed out that, when consolidating their clients’ portfolios, which are managed by different companies and/or banks, they usually find that the same selected funds, which therefore does not deliver the expected diversification.
What is the greatest challenge as a fund selector?
When selecting a fund manager, one of the greatest challenges is to make sure that the portfolio positioning remains consistent over time with its investment philosophy. Therefore, the qualitative analysis is the most important criteria in our selection process. We treat a fund as if it was a company and we insist on meeting the managers in order to identify those that share Financière Arbevel’s approach. We question fund managers over their current views and monitor closely their top convictions. This gives a lot of information and help to identify fund managers that really focus on company fundamentals and remain consistent over time.
Which assets do you think will perform better (survive) in 2020 considering the current market situations? Which assets are performing well under stress scenarios?
Our most successful strategies so far this year have been in the equity space. First with high quality global equity funds delivering a low single digit positive performance year to date. Resilience of business models and strong balance sheets have been key drivers of the performance so far this year. Second, thematics equities have also delivered solid performance, as strategies positioned on the digital economy obviously benefited from the social distancing.
Going forward, we believe Healthcare should take advantage of both public and private financing to accelerate digital transformation and trigger innovation in the sector. We believe that strategies positioned on innovation in the Healthcare space offer compelling investment opportunities.
What kind of adjustments did you make in the portfolios that you manage, in terms of hedging or risk management? How does the adequate asset allocation look right now?
During the Covid crisis, we only divested one strategy, a long/short market neutral equity fund. It delivered a solid relative performance during the crisis with a limited drawdown thanks to its very strict risk management process. The performance of the strategy was driven by alpha generation, with zero-Beta exposure. We initially selected this fund as an alternative to credit, given its similar risk/reward profile. It worked well during the market sell-off. However, we decided to exit the position after the credit market’s dislocation in March, followed by Central banks’ decisive action to stabilize the market. As we found opportunities with spread widening, we believed that risk/reward in credit looked more attractive, and strategies without ability to get exposure to the market recovery were less interesting.
Our balanced portfolio is currently invested around 60% in equities, of which half is in technology and healthcare sectors. The rest of the portfolio is split between flexible bond funds and fundamentals long/short equity & credit strategies.
Could you name any alternative investment options with high and long-term potential even during the current crisis?
Within the absolute return space, we seek strategies with limited drawdowns during market dislocation. We only invest in strategies for which we can easily understand the risks and for which we are convinced about their ability to offer downside protection. Therefore, we never invested in global macro or merger arbitrage strategies. We were disappointed by the performance of these strategies during the sell-off, knowing that they were supposed to offer decorrelation from equities, but in the end suffered from market dislocation and liquidity issues.
We are currently invested in the GLG Innovation Equity fund, a fundamental long/short equity. The strategy focuses on companies and sectors undergoing rapid change or innovation, providing alpha opportunities. Thanks to a very strict risk management, the strategy has delivered a positive mid-single digit performance so far this year, with a low-single digit drawdown during the recent sell-off. We believe that the strategy is well placed to continue to benefit from the ongoing changes triggered by the Covid crisis.