By Jonathan Furelid, NordicInvestor
Alfred Berg in Sweden manages approximately 41 billion SEK in funds and discretionary mandates for institutions and private clients. Heading the strategic allocation team is Jonas Olavi, who is often seen in Swedish media commenting on financial markets and individual companies. These days he also runs his own podcast – Börssnack. Jonas joined Alfred Berg four years ago having previously worked within the allocation team at Nordea serving the bank’s private clients.
In his daily work, Jonas holds responsibility for allocating the discretionary mandates that is overseen by Alfred Berg, both for institutions and private clients. All-in-all he manages approximately 1,7 billion SEK in these mandates where about 20 percent derives from institutions. For private clients he runs a specialised tailored solution called SparAktiv, where retail clients can sign up for an allocation service typically only offered to high net worth individuals.
In deciding how to allocate portfolios, Jonas uses a model called MVS where he first identifies which macroeconomic data points and trends that are dominating market action. He then studies how different assets are valued and how different scenarios are priced into these valuations. In a final step he conducts an analysis of the current market sentiment in order to detect nuances or changes in investor behaviour.
“We form a top-down view that act as a foundation for our allocations, however in actual client portfolios, we adapt these allocations to align with the client’s particular preferences. That could for example include keeping the volatility or standard deviation within predefined tolerance intervals.” He continuous “We also offer tailored themes where the client can choose for us to allocate within sustainable funds, price-efficient funds and finally truly active and agile funds. We run an optimization of expected returns in order to decide how much weight to give to each and one of the assets included, while adhering to the predefined risk limits set by the client.”
Jonas runs a variety of mandates. On the one hand it includes balanced portfolios where he allocates to equity and fixed income funds as well as to ETFs. For business clients he typically runs more exotic portfolios including alternatives, but rarely so he says. Most of his clients are looking for a Swedish exposure of stocks and bonds and in certain cases add alternatives such as real estate, hedge funds and commodities. He predominantly invests into funds to get that exposure.
Given that Alfred Berg is part of the French banking group BNP Paribas, Jonas focus, for clients on the business side, is to get the best exposures out of the wide range of funds offered by Alfred Berg and BNP through the so-called Parvest funds. But for other types of clients he turns to external funds.
– For our business clients we tend to use our own and the BNP funds to get the required exposures. However, for private clients where we run discretionary mandates, we use 100 percent external funds, that includes clients using the SparAktiv service, Olavi says continuing:
– In order to be able to offer a truly independent and actively managed portfolio, we have decided to exclude our own funds when making the fund selection for private clients. In the future we aim to offer the SparAktiv solution to business clients as well.
When selecting external funds, Jonas and one colleague sets the boundaries for what they are looking for. The investment universe is based on what funds that are present on the respective platforms that the client is connected to.
– For example, if the client uses Nordnet as platform for his or her investments, we scan the funds on that particular platform. It forms our universe. We then do a quality check using the Morningstar Direct database where we put a great deal of emphasis on what makes the respective manager unique, in other words what characteristic that is special for the particular investment style. When I understand the special characteristic offered by the manager, I can then use it as a building block in our allocations.
In order to understand how Jonas and his teammate work, he takes a very simple example.
– Say that we want to have an exposure to North America and that we believe that managers having a low volatility profile offer the best opportunities in the current environment. This would lead us into looking for a manager that has shown consistency in managing assets during a similar market period as we are anticipating, for example in a downward market trend.
Coming back to how he looks at alternatives as a defensive exposure in times where markets are more volatile or exploits bearish trends, Jonas says that they currently have arrived at a 5 percent allocation target for the asset class in model portfolios.
“We actually see the addition of alternative exposures as an add-on risk in the current environment of negative interest rates.” he says. The fact that many of these funds are illiquid and create lock-up effects plays into that assessment. “Having said that, this view might change going forward as markets and asset correlation change more persistently. We use alternatives to increase diversification and potentially increase risk-adjusted returns. In the current market environment, we prefer to play the asset class defensively.”