Timely removal of exposure to directional hedge strategies has helped funds like the gam multi-europe usd fund
Within the European equity fund universe, portfolios that invested in the property market as well as changed investment strategy with the market performed well. Funds that did not perform well had heavy weightings towards telecommunications stocks.
The GAM Multi-Europe USD was ranked in the fourth percentile over a three-year period.
David Smith, chief investment officer at GAM, says there have been a number of strategy changes throughout the three years that contributed to the good performance of the fund.
Between 5 July 1999 and 3 July 2000, the fund was ranked in the fourth percentile. Smith says in this period the portfolio was mainly invested in directional hedge funds, but also had some long-only hedge fund exposure.
However, in November 1999 Smith started to get nervous about the market and thought it risky to have directional hedge fund exposure in the portfolio.
This proved to be the right move for the portfolio and in between 3 July 2000 to 2 July 2001, there continued to be no directional exposure in the portfolio. Smith says he remained market neutral to protect the capital of the fund.
His investment strategy shifted again between 2 July 2001 and 1 July 2002 to take advantage of market volatilities. The fund was invested in European fixed income portfolios and was also marginally positive on the US.
Crispin Odey, fund manager of Odey European Inc EUR and OEIMAC Inc, both had terrible performance relative to peers between 5 July 1999 and 3 July 2000, when Odey European Inc EUR was in the 98th percentile and OEIMAC Inc was in the 99th.
Odey says between 5 July 1999 and 3 July 2000 the portfolios missed the technology bubble and as a result it was a painful year for both.
However, he adds that he is most proud of that year, because since then both funds have performed exceptionally well. He claims that in the past two years he has understood the markets and got it right.
In the past two years the OEIMAC Inc fund has been ranked in the first percentile. In between 3 July 2000 and 2 July 2001 the Odey European Inc EUR fund was ranked in the third percentile and in between 2 July 2001 and 1 July 2002 the fund was ranked in the first percentile. The difference in performance between the two funds was due to the currency position in the OEIMAC Inc portfolio.
Odey says the past two years have seen a more conservative strategy than the previous year. The good performance has been the result of investing in the property market, which has performed well due to the low interest rate environment. However, in June both portfolios started selling out of property because of fears that the bubble could burst.
Odey thinks all the property-related charts show signs of tiredness. The market is saying the housing boom, which has kept the depression at bay for the last two years by encouraging house owners to feel rich and spend money, will almost certainly start to work the other way.
The investment strategy used in the two funds include both top-down and bottom-up methods and each portfolio has a high turnover of stocks.
The company does not have a conventional approach to stock picking and the team tries to speculate what the real economy and different sectors are going to do.
The Urquijo Euro Telecom & Utilities fund over a three-year period has been ranked close to the bottom. The bad performance can mainly be attributed in the last two years.
From July 1999 to July 2000, the fund was ranked in the 50th percentile. This dropped to the 100th percentile in between, from July 2000 until July 2001, but rose slightly to the 98th percentile between 2 July 2002 and 1 July 2002.
Andre Souto started managing the fund from the end of 1999. The fund was launched in 1998 and has followed the Dow Jones sectoral index in telecom and utilities.
Souto says the fund performed better during 5 July 1999 to 3 July 2000 as it captured some of the gains of the telecommunications boom and due to the underweight position in the major telecommunication operators.
The investment strategy Souto has used has been to overweight telecom operators with a bigger exposure to emerging markets. He has preferred smaller telcos such as TelefÃ³nica, Portugal Telecom and Telecom Italia.
Souto says the environment has been competitive for the bigger companies. The market is mature and these companies have to be quite aggressive to stay ahead.
In the utilities Souto has preferred blue chip companies, saying this sector should benefit from the rationalisation of the market.
In the middle of 2000, the major European telecom players starting bidding for the Universal Mobile Telecommunications Systems licences and paid a large amount of money for these. By buying these licences these companies increased their debt levels and to save costs were not spending money on capital expenditure.
Souto started to increase its weighting towards smaller telecommunications companies.
During 2001 the benchmark to the portfolio changed to also include technology stocks. At the beginning of 2001 he began to buy semiconductors and became underweight in the major telecom stocks.
Souto uses a top-down bottom-up approach to look at overall scenario to see the major hurdles in sector and see how each company will react to these hurdles.
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