Swimming against the tide: picking an out-of-favour manager

by Angel Sanz

Angel Sanz is answering City Wire‘s question about funds’s selection:

“Picking an out-of-favour manager may prompt investors to question your selection methods but which funds have you stood by and benefited from despite all signs telling you to sell out? Who repaid your faith in their potential and became a top contrarian call?”

Picking-up a good manager is normally a two-step process. First, we must like the asset class and we must like the specific fund within it. If the manager is not performing well because the asset class is doing poorly we may focus our attention on the manager and take the decision to invest if we happen to like the asset class and if we like the manager also. A group of examples illustrate well this process.

Between December 15th and January 16th, many US high yield managers were performing poorly because the drop of commodity prices. We took the decision to invest in PIMCO High Yield because we considered that spreads were already too high and because the fund had a position much less exposed to energy than the peer group. The fund made 12% in 12 months.

BB Biotech is a Swiss based close-end fund. After the Hillary Clinton’s tweets talking about price control for drug prices, and in the middle of a market correction, the price of the fund dropped dramatically and was even trading at 15%-20% discount to the NAV in January 2016. This level of discount gives a precise idea of how much out-of-favour it was. The fund is managed by a selected group of high talented experts in the fields of Biotech and finance with a very good track record to spot successful Biotech companies. We added to this fund and made about 20% in a year.

What are we doing today using the same approach? We are adding to a fund called Notz Stucki Raymond James Strong Buy Selection, a fund that invest in the Strong Buy list of Raymond James. The fund is biased to mid-small caps and holds 20% exposure to energy. Both asset classes are out-of-favour but we do believe that this is a good investing opportunity.

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