Fri, 10/03/2006 - 07:00
Dino Fuschillo outlines how discipline of process, buy and sell decisions, and a focus on stock-picking are being using to generate results for his European fund.
HW: What is the background to the fund?
DF: The Martin Currie Absolute Return Funds - European Fund, was launched on 1 June 2004. I am the Lead Manager of the fund, which has AUM of USD 34.9 million at 1 February 2006, with overall product capacity capped at USD 500 million.
HW: Who are your service providers?
DF: The fund's Prime Broker is Morgan Stanley, fund administrator is AIB/BNY Fund Management, law firm is Lovells and the accountants are Ernst & Young.
HW: How and where do you distribute the fund? What is your current and targeted client base?
DF: We distribute our hedge funds globally to financial institutions, wealth managers, funds-of-funds and family offices. We are also seeing increasing interest from pension funds as they increase their allocation to absolute return products.
HW: What is the investment process of your fund?
DF: With my colleagues I seek to identify processes of change that are material to share prices. I believe the market finds it difficult to fully discount the impact and duration of change. Change may be of the 'big picture' variety, but is more likely to be close to the company, such as:
Once identified, I evaluate the investment opportunity using a framework of quality, value and growth versus market expectations. We also apply a technical overlay before finalising an investment decision. I place equal emphasis on the generation of long and short ideas.
HW: How do you generate ideas for your fund?
DF: From a range of sources: the European product team - Dino Fuschillo, Stewart Higgins and Dr Eric Woehrling; from Martin Currie's 13 sector managers; and from our in-house numerical framework - the Dynamic Stock Matrix. The focus is on identifying the direction and drivers behind both positive and negative change at a stock level. As lead manager I challenge ideas from all these sources rigorously to ensure that only the best ideas make it into the fund.
We also look at various technical indicators to help determine if the market is over bought or under sold.
HW: What is your approach to managing risk?
DF: Risk management is fully integrated into our investment process and we monitor it on a daily basis. Our portfolio risk team works closely with me to help optimise the risk/return trade-offs. Our risk management team:
Our performance measurement and risk management teams review and monitor portfolio risk, while our dealing and asset control team manages process risk.
We recognise that risk modelling has its limitations and for this reason employ a number of complementary toolkits to provide alternative viewpoints. Tracking errors, style profiling and macro factor reviews sit alongside the more conventional stock and sector relative analysis. We place most emphasis on effective risk management - that is, timely decision-making based on the reporting output.
HW: How/against what do you benchmark the performance of your fund?
DF: The performance objective is to provide absolute returns of 10-15% per annum with maximum volatility of 15% per annum. It is a genuine stock-picking fund, and we run a focussed range of high conviction stock positions, both long and short. The fund invests across the European equity market and is unconstrained by any country, sector or market capitalisation weightings.
I constantly challenge the market's consensus both on sectors and on individual stocks, and - where the consensus is wrong - act meaningfully on my convictions. Adhering to my stockpositions and fund structure means I do not respond to short-term fluctuations. As such, this is not a strategy designed to produce positive returns on a month-by-month basis.
HW: Has your performance been as per budget and expectations? Do you expect your performance or style to change going forward?
DF: Yes. Since I took over management of the fund on 1 June 2004 the fund has returned 22.13% per annum with volatility of 11.38%. I do not expect performance or style to change in the future.
HW: What opportunities are you looking at right now?
DF: Once again, we emphasise that this is a stockpicking fund, and the key factor driving the fund's performance is superior stock selection. The equity markets of Spain and Greece are providing particularly fertile. In Spain, long positions in Acciona, ACS (Actividades de Construcción y Servicios) and Banco Santander Central Hispano have significantly outpaced the market, while Greek holdings Alpha Bank and Titan Cement also made key contributions to returns. On the downside, the market took an unfavourable view of Credit Suisse's latest numbers. But we retain our conviction in the company and in our position.
Looking forward, the positive news from the most recent corporate reporting season has supported our optimistic view of the prospects for European equities.
HW: What events do you expect to see in your sector in the year ahead?
DF: The continuing reluctance of sell-side analysts to upgrade their forecasts - thus providing us with attractive opportunities to invest in companies which have the potential to surprise on the upside in the near future.
Secondly, the plethora of takeover rumours is distracting the market and making it more difficult to make money in the short book. But once the current takeover fever cools, we are confident our shorts will prove profitable.
HW: What differentiates you from other managers in your sector?
DF: Discipline of process, buy and sell decisions, and our focus on stock-picking. A second factor is our risk management, as good we believe as any.
HW: Do you have any plans for similar/other product launches in the near future?
DF: Yes. We will continue to launch new long/short funds that match our skills and our clients' needs. For example, we are running model funds in several sectors, mirroring our highly successful Global Resources long/short fund.
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