One of AllianceBernsteins top investors has told fund managers that, to survive in the game, they have to take risks where they have skill.
Klaus Ingemann, co-chief investment officer of global core equity told Investor Daily that fund managers had a duty to their clients to only take risk where they have skill.
“If your client asks you to play poker with their money, why are you playing blackjack? Why are you taking risk on the outcome of the China/US trade wars if I asked you to pick stocks,” he said.
Large fund managers could offer style ETFs for low fees and make money, said Mr Ingemann, but to survive in the industry more managers need to be active.
“To survive in this industry it has to be from active management and that active management includes being aware that you cannot charge fees from styles,” he said.
Mr Ingemann said that, for many mid-tier and smaller firms, they had to show their value to clients in a way that could not be replicated.
“The only thing clients should be willing to pay for is for idiosyncratic returns, so something that is particular to that manager that cannot be replicated for a style, including stock-picking,” he said.
Mr Ingemann said that he ran a stock neutral portfolio which generated returns based on the stocks rather than anything else.
“We’re running a portfolio where we are making sure we take risk where we have skill. People ask us to pick stocks and it’s important that’s what we do,” he said.
A portfolio of this type is suitable for investors who are not convinced about what market they are standing in front of, said Mr Ingemann.
“It’s for investors who are clueless about geopolitical risks, like recessions or trade wars and people who want to forget about the annual fluctuations,” he said.
In stock picking, the trend is your friend, said Mr Ingemann, because styles will change but momentum is what’s important.
“Our style neturality works because we’ve been able to deliver performance and ride out the market style rotations. We try to deliver excess returns regardless of what the style rotations do,” he said.
Moving forward, Mr Ingemann believed that the industry needed the re-education occurring due to the inexpensive and free style of ETFs and that fund managers must prepare for it.
“To survive in this game you need to be very active and you need to tell your clients a story about where you have skill and illustrate that you take risk where you have skill.”
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