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Profile interview – José Luís Borges

Fearing that the current preoccupation with long/short equities will lead to short trades becoming too crowded, José Luís Borges insists on his long/short funds being market-neutral. However, the Lisbon-based head of institutional portfolios at BPI Gestão de Activos is otherwise happy to be overweight equities.


PA Europe

Having a higher allocation to equities has a different meaning in every country and Portugal happens to be home to some of Europe’s most conservative investors; according to Expert Investor research, Portuguese fund buyers have average allocations to equities of between 15% and 25%. Many retail investors maintain even lower weightings.

BPI Gestão de Activos, the asset management arm of a mainstream Portuguese bank with approximately €12bn in assets under management, is at the higher end of the scale.

“The typical allocation to equities is around 25% of the portfolios. As from 2013, we have been overweight most of the time,” says Borges. “Right now, we have an allocation of around 27% to equities.”

This naturally means that Borges is underweight fixed income. However, within that asset class he is taking a contrarian view. While many investors believe most value is to be found in corporate bonds since spreads have widened this year, Borges prefers the most demonised asset class of the past two years: government bonds.

“They have better diversification benefits because of their lower correlation with equities. While high yield went down almost like equities at the start of this year and investment-grade bonds lost a bit of money, government bonds went up slightly,” he says.

On top of his allocation to long-only equity funds, Borges and his team have been building a separate bucket of market-neutral equity funds since early 2014, replacing approximately 20% of their fixed income exposure.

“We only use funds that are close to market-neutral and have a maximum net exposure to equities of 20%.” These market-neutral funds are the only alternative strategies used by Borges. The remaining 60% or so is still invested in bonds, floating rate notes and cash. Since Borges’ clients are institutional – mainly pension funds – he could in theory opt for offshore funds instead. But he chooses not to.

“We use only Ucits funds because they are more transparent. To have the portfolios disclosed is important for us,” he explains.