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‘The market is full of people who are clever and wrong’

You can’t be right all the time so it’s vital to find managers who hold opposing views to your own, argues Pierre Bismuth


David Robinson

In the sweltering summer of 2016, Pierre Bismuth struggled to sleep at night. The UK’s surprise Brexit vote had rocked Europe, screwing with investment forecasts.

The problem was that unlike many peers, Bismuth had seen Brexit coming. “I thought it was very possible Britain would vote to leave the EU,” he recalls.

But it’s one thing to predict a scenario, it’s quite another to respond appropriately.

“I got it completely wrong,” he admits. “In the run up to the vote in June we sold the pound against the dollar, but what I didn’t understand was that the FTSE would go up if the pound went down.”

Despite, Bismuth’s bet on UK stocks falling, the index actually rose more than 15% in the six months after the vote. “If you see something coming but you implement it in the wrong way, it can be very hard,” he sighs.

“But when you get something wrong you have to move on. It’s another day and you are always learning.”

Learning about markets is something Bismuth has done since he was a teenager, after his father bought him a few stocks in France’s early privatisation schemes.

“I realised then it was what I wanted to do,” he recalls.

Three decades on from his first tentative steps into the market, Bismuth is now the managing director of Myria Asset Management in Paris, a multi-manager and fund host with investments totalling more than €2.5bn. Myria was created by Union Financière de France in 2014, which remains its sole shareholder.

Bismuth manages two funds of funds: Myria Concept Multistars, which is invested in about 40 funds across asset classes totalling about €200m; and Capital Planète, which tracks global equity funds totalling about €45m.

He runs the group alongside head of fund selection Thierry Guérillot. “Thierry is the gatekeeper,” Bismuth says of his colleague.

“Sometimes we disagree [on a fund’s merits] but we always work it out.”

A European bias

As a French multimanager, Myria’s bias is towards Europe. About 25% of the funds that make up Myria Concept Multistars, for example, are Europe-focused. “We are European, so we lean towards European equities.

We try to fight this bias but it’s hard,” Bismuth says.

Myria’s European bias has led to a challenging year. Economic growth in the eurozone fell to a four-year low of just 0.2% in the third quarter, dragged down by political uncertainty and economic stagnation in Italy.

The Euro Stoxx 50 was down more than 8% YTD in mid-November. “There’s no momentum in the eurozone,” Bismuth sighs. “We are not happy about the performance of European equities compared to the US.”

In the Autumn, Myria rejigged its international equities funds to address this gap.

Momentum in the US market this year has, of course, been driven by the outsized performance of leading US technology stocks.

Despite the October correction, the S&P 500 was up more than 4% YTD over the same period.

“The valuations on the FAANGs – Facebook, Apple, Amazon, Netflix and Google – are high but you can’t afford to be left out,” Bismuth says. “There is a global weight towards US tech.”

Bismuth and Guérillot may disagree in the merits of some investments, but one fund they definitely agree on is Seilern Stryx World Growth fund – a global large-cap growth equity fund heavy in US equites – that makes up 6.1% of Capital Planète’s portfolio, its largest fund holding. “Its performance has been really impressive,” he says.

Finding momentum

“There are a lot of value managers who claim they can buy cheap and then the price will recover. But this year, what has been cheap has often become cheaper and what has been expensive has often become more expensive,” Bismuth says.

“What we’re looking for is momentum, funds that can follow a powerful trend or fad. But it’s not easy,” he says, adding that very few fund managers are actually capable of identifying a trend early and riding it effectively.

“We do not try to be cleverer than everyone else. The market is full of people who are clever and wrong. Some people say the market is wrong – I never say that. I say the market is always right and it’s me who’s wrong. If the market has momentum you need to find momentum funds that will follow it.”

This year, of course, what momentum there has been has been checked by significant stock market instability. Volatility has been the watchword of the year. “To be honest, 2017 was really easy – 2018 has been the complete opposite!” Bismuth says.

Myria has sought to rebalance its mix of funds and sectors to adjust to market movements to match the performance it achieved last year, but it has been tricky. “It’s been really hard finding the right managers this year to mitigate between styles,” he adds.

In October, global markets saw their longest decline since the inauguration of US President Donald Trump, amid concerns that US earnings may be peaking.

“The big sell off [in October] was not very understandable. We just tried to stay calm,” he says, comparing recent market volatility to being in a washing machine. “Honestly, if you move, it’s already too late. You just have to see if your scenarios are proven wrong or if anything changes radically.”

Opposites attract

Myria outlines some of its scenarios on its website. Its September post advocated plumping for US stocks at the expense of emerging countries, among other views.

“I’ve got my scenarios, but I will not be right 100% of the time,” Bismuth admits. “I might be right 50% of the time. I know I’m going to be wrong sometimes.

“Therefore, what I’m looking for is fund managers who hold completely different views of the market as well as those who are aligned with my scenarios. It’s important that a proportion of our investments are the opposite of what I think. We won’t grow if I only listen to myself!”

In a bid to find this balance, Bismuth spends a significant proportion of his time meeting with fund managers. “I really need to understand what they’re doing, trust them and feel they have a strategy worth investing in,” he says.

“But what I really want to know when I meet a manager is whether I can go through a cycle with them. Is the fund going to be good in one kind of market and bad in another? I need to understand that.”

Bismuth cites the example of Japanese equities, which have posted robust returns over the past couple of years on the back of strong corporate earnings and attractive valuations.

“I don’t understand the market,” he admits. “I don’t understand Japanese people and I don’t understand the country.”

“Therefore, when I meet with fund managers focused on Japanese equities I need to understand how it could help to diversify our portfolio in terms of the dynamic of the market. I need to know whether its mid-cap or growth equities, or if it tracks certain indices and whether you need to be neutral or overexposed or underexposed relative to the benchmark,” he adds.

“Sometimes, when you don’t understand something it’s good to be humble. I always remind myself that I do not know everything and cannot be right all of the time.”