Why portfolio managers must be more sophisticated

CEO of asset management firm says passive approach will be dangerous going forward

Why portfolio managers must be more sophisticated

Sophistication over simplification is required as this bull run turns into more complex, trade-ranging market.

That’s the view of Fiona Frick, CEO of Unigestion, a Geneva-based asset manager with US$26.5 million under management, who believes that portfolio managers must become more agile and dynamic to combat increased risk and uncertainty in the market.

She said: “In terms of asset allocation, it means diversifying more. Typically, if an investor has mainly equities and bonds, now there will be a need to go into alternatives, sometimes hedging.”

Hedging, she said, will be important given the boom-and-bust seen in February – where the market dipped up to about 10% in a few days. Frick added that this a trend she believes will continue.

Last year was a “very nice period to make very decent returns” with a passive approach and no need to choose risk, enabling good performance from “vanilla benchmark products”. Frick, who has released a paper titled “Survival of the fittest: adapting to complex markets”, said that mechanical construction approach will be dangerous going forward.

She believes current investment risks stem from a myriad of issues: central banks starting to take out liquidity, interest rates starting to go up, more uncertainty in regards to economic numbers, tensions with growth, returning inflation and macroeconomic uncertainties.

She said: “The strategies that worked in the past where simplicity worked very well are going to be difficult … investors will need to have much more agility and diversification in their portfolio.”

She added: “Advisors will need to have the capacity to be more dynamic in asset and hedge the market risk. They will have to choose risk.”

While Frick predicts a see-saw ride that will result in active management coming to the fore and being more effective, she does not think a major correction is imminent until we still better economic growth.

But she said: “There is going to be more market stress – perhaps you will finish the year between +5% and -5% but there may be some months where you would have lost 10%.”

She added:  “Portfolio managers will need a more sophisticated portfolio going forward, simplicity will not work. You will need more diversification and to be more dynamic with asset allocation.”


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