“We want funds that do not focus on chasing the last 10 basis points, because that gives you extra risk. For most private banking clients, value preservation comes before everything else.” What private banking clients also want, Reisbøl points out, is a tangible investment. “They want to know in what companies they are invested, and they like it if you find something off the beaten track that they can talk about on the golf course.”
Tracking tactically
It is little wonder Carnegie doesn’t use ETFs to make strategic allocations. As a tactical instrument, however, he is a big fan of them. “When we want to increase exposure to a
specific asset class, we execute that view by buying an ETF, which is very cost-efficient and extremely quick to implement. Between a few days and a month later, we specify what sort of fund we would like and then replace the ETF with this fund.”
In exceptional circumstances, however, Reisbøl can decide to implement an ETF holding strategically. “An example is the ISE Cyber Security ETF [which has the ominous ticker name HACK], which tracks a range of cyber security companies. We have that ETF on our white list because there is no active fund offering a similar proposition.”
Absolutely not
These days, many fund selectors and portfolio managers regard absolute return funds as indispensable ingredients of a balanced portfolio, as they are supposed to bring in uncorrelated returns. However, Reisbøl is not in that camp.
“We don’t spend much time looking at correlations within portfolios. Correlations are especially important when markets go south, but when that happens assets start to correlate more, so we take the whole thing of correlation management with a huge pinch of salt.”
Absolute return funds also often lack transparency and are problematic from a risk management point of view, he says. “We don’t like absolute return funds because they are opaque and not transparent enough for us. We often scan our client portfolios for the total amount of risk and exposure they have, but with absolute return funds it’s often impossible to see how big their exposure is to each asset class at a certain moment. “Our allocation to absolute return funds is symbolic. We really only buy these if a client takes the initiative and if we know the manager well.”
