Gordon Strachan, investment director of the Luxemburg-domiciled Equity Alpha funds managed by Axa Rosenberg, says his team doesn’t have a ‘star fund manager’ culture. “We are more quantitative in the way we tackle the investment process. We are using systematic models to identify stocks and a risk model to control the exposures within the portfolio and that’s true for all of our strategies.”
Their family of Equity Alpha funds includes the Axa Rosenberg Europe ex-UK Equity Alpha fund that, according to returns data by Standard & Poor’s, has been top-performer over three years in the Europe ex-UK category.
The fund aims to beat the MSCI Europe ex-UK index by investing in bottom-up stocks across the region.
“We use a valuation model to identify cheap or undervalued stocks relative to their peers across every industry and we look at the longer-term earning prospects” Mr Strachan explains. “Coupled with the valuation model we have our earnings forecast model and that’s really looking at the shorter term earnings prospects for all the stocks within the universe, identifying those that have the most attractive earnings profile over the next 12 months period.”
The team builds portfolios with similar characteristics than the given benchmark in terms of country exposures and market capitalisation using a risk model that takes into account over 150 different risks factors.
“I would say that we are almost obsessed with risk control in all our strategies,” he says. “The idea is that if you can diversify some of those unnecessary or unwanted risks, then the performance coming from the portfolios is very much about your bottom-up stock selection.” He says they don’t undertake any top-down asset allocation. “It is all driven by our systematic models – the valuation and the earnings forecast model – that identify attractive stocks relative to their peers.”
In terms of country exposure, Mr Strachan explains they build portfolios with very similar characteristics at the country levels. “We don’t expect to add any value to the performance via country allocation. If you look at the characteristics of the portfolio typically we are very much in line with the benchmark weights, the rationale being we believe it is very difficult to consistently add value at a country level.”
However, he adds, through their bottom-up stock selection process they are able to identify some industry insights. “ So we have some net exposures at the industry level but that is very much driven by the attractiveness of the stocks within those industries,” he explains. Over the past year, for instance, they have been overweight in the oil sector – including also oil distribution and exploration companies.
“But because of our risk control, the industry exposures that we have are actually quite small in the scheme of things,” he explains. “We don’t believe we are taking significant bets, but we do have some small insights we are comfortable to run with but those are constantly monitored.”
Looking at the fund’s top 10 holdings (see table below), there is strong presence of stocks of companies in financial services. “Our model still finds these stocks attractive in terms of their short-term earning prospects and hence we have overweight position on them,” he says. Investments in these top 10 holdings represent just over 27 percent of the fund’s total investments.
At the end of May the fund had total assets under management of just under €283m coming from both institutional investors and fund distribution platforms.
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