Should Fund Allocators Be More Contrarian?

By Hamlin Lovell, NordicInvestor

Jupiter’s Head of Nordics, Magnus Jahnke, has spent most of the past 15 years in manager selection roles, building multi-manager portfolios that reflected his belief in high conviction, and often contrarian, active management. We sat down to discuss recent trends in sales and why clients need to work their assets harder.

Moving from a fund selector position into a sales role has become a natural career progression which I believe reflects the fact that client relationship is becoming more strategic and therefore requires a different sales approach.” Sales managers who have a more technical background both from a macro-economic and product perspective can increase the quality of the sales process and help build successful long-term client relationships.

Jahnke believes that following a herd mentality and buying into big brand names, based on recent performance instead of looking into the undelaying investments will not work anymore as markets have changed drastically. Yields continue to fall lower, returns are more difficult to achieve, and volatility has returned to markets following a decade of complacency, soothed by central bank stimulus. Jahnke is convinced: Clients need to work their assets harder.

Active management

Jahnke’s clear preference has always been active managers running high conviction and concentrated portfolios, and who may well be taking a contrarian view. “Having skilled Fund Managers that manage their portfolios in an unconstrained and high conviction fashion in combination with well-defined and structured investment process tends to pay off over time. Investors who have a genuine interest in investment will favour a manger like this. If a fund managers / strategy has lagged for a period, investors should dare to take a contrarian approach and consider buying into a recovery, as long as they trust the manager and the manager remains consistent and loyal to its investment process.” Jupiter is clearly a good fit for this philosophy. Jahnke and Jupiter’s mindset are also well attuned to the general philosophy of active management in the Nordics: for instance, only 11% of equity funds are passively managed in Sweden, according to the Swedish Investment Fund Association, which is well below the 45% proportion in the US.

Domestic investors generally make their own asset allocation decisions so there is little interest in multi-asset products. Many allocators in the region use passive products such as ETFs as building blocks for their active asset allocation, but even here, Jahnke is keen to keep truly active management on the agenda – as it could be combined with passive exposures in a complementary way. Investors may choose a low-cost index tracker for pure beta exposure, while using highly active managers for alpha.

Jahnke regularly brings Jupiter’s managers to the Nordics on roadshows and finds institutions welcome the opportunity for one-on-one discussions with fund managers. “Still many institutions like to build a relationship with the fund manager and the meetings are an important part in their decision making, he says. He recognizes that the market has become very competitive. In addition to all the local asset managers, more and more non-Nordic asset manager are increasing their presence in the region.

Jupiter is not trying to be all things to all people and is not a “one stop shop” offering comprehensive solutions. Jupiter plays to its strengths, focusing on a range of liquid and actively managed funds in different asset classes as Equity, Fixed Income, Multi-Asset and Absolute Return. With over 30 years of experience in sustainable investing, Jupiter has also been among the first asset managers worldwide to establish sustainable investment strategies in 1988, a topic that is of great importance throughout the Nordics. The phenomenon of sustainability has evolved over the years, from SRI with exclusions to best-in-class investing with ESG criteria. In our view, the key to success is precisely how to integrate ESG into the investment process. is Jahnke convinced.

The search for yield

Investors are clearly yield-starved and are willing to move into more illiquid assets and complicated structures to find a pick-up in yield such as structured credit, direct lending etc. Jahnke is concerned that increased inflows into less liquid instrument could end up be very costly if we see a wobble in these markets. He recognizes that Nordic high yield corporate credit offers a relatively attractive returns in local currency terms and it is difficult for investors to stomach the hedging costs investing abroad. Nordic credit could be skating on thin ice, as the markets has not really been tested yet and might be very vulnerable in selloff.

Due diligence and customisation

Jahnke appreciates the differences between Nordic regions. Danish investors are particularly more fixed income oriented, whereas Swedish, Finnish and Norwegians have more appetite for equity risk in general. But some qualities are common throughout Scandinavia: “Nordic investors have always spent longer time on due diligence than those in most other regions”, says Jahnke. Fees are under pressure everywhere and even smaller investors do have an institutional behavior when it comes to fees and services.” Despite the fee pressure investors still pay more for quality and genuine active management, which is what we offer. Most of Jupiter’s product range charge only flat management fees and research costs under MiFID II are being absorbed by Jupiter. Jupiter’s client base is geared towards institutional clients but does also distribute their funds via some bank, insurance and retail platforms. 

Customisation of strategies is increasingly sought after. We are seeing more customization among the larger institutional clients due to their exclusion lists. We have done some research on this topic and there is actually not much overlap amongst institutions’ exclusion lists and therefore we as an asset manager need to be flexible. 

Jahnke’s key differentiator is that he will push underperforming strategies harder. For instance, “James Clunie, Global Equity Long Short strategy, has been net short, and has been long of value versus short of growth for several years. These have been huge headwinds, but he is well positioned to profit from either a bear market or a shift from growth to value”.

2019-11-01T11:39:46+00:00By |Categories: People, The Nordic Brief|