In the back
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[ WHAT I BOUGHT LAST ]
The challenging environment
experienced in 2018 has opened
an attractive entry point to
investors and provided a true test of
management capabilities
Aviva’s Luca Dal Mas says this fund’s use of long and short strategies
means it is not dependent on the direction of the market
BlackRock European
Absolute Alpha
E
uropean equities
have historically
tended to be
more volatile than their
American counterparts,
while offering a
substantial dispersion
in returns on a country
and sector basis. One
way to capitalise on
this disparity in returns
is to allocate to equity
market-neutral strategies
and managers that focus
on delivering alpha-
centred returns.
The challenging
environment
experienced in 2018 has
opened an attractive
entry point to investors
and provided a true
test of management
capabilities. We think
TRUSTNET
there are only a handful
of managers in the
European sector that are
capable of navigating
more volatile markets
while maintaining a
balanced profile and
staying true to their
investment process.
listed in the European
Economic Area and
Switzerland, is one
strategy that met our
requirements.
While the fund has a
long track record, the
relatively recent change
at the helm resulted in
an evolution in how it
The long and short of it
delivers returns, with
We focused our research less reliance on market
on strategies that have
direction or beta and a
sourced alpha on both
strong focus on bottom-
the long and short side of up stock selection.
the portfolio in order to
The fund is now run
limit their dependence
by David Tovey and
on a specific market
Stefan Gries, two long-
environment.
standing members of
The BlackRock
the BlackRock European
European Absolute
equity team.
Alpha fund, which
Tovey has significant
invests primarily in a
experience in running
portfolio of equities
equity market-neutral
strategies, focusing
on consistent alpha
delivery on both sides
of the book, having run
such a Swiss-focused
strategy for BlackRock
in addition to a more
directional version of
the European Absolute
Alpha fund.
The investment
philosophy is based on
the belief that equity
markets are not efficient
and that by using
rigorous, disciplined
and fundamental
research, combined
with sophisticated risk
management tools, it
is possible to produce
consistent alpha.
On the long side, the
team looks for good
compounders that can
be held for a reasonable
amount of time in the
portfolio, where they
are comfortable with
the business model
and there is limited
probability of material
capital loss.
On the downside
The key characteristics
that the team looks
for in short ideas are:
structurally challenged
businesses; limited
or no pricing power;
low returns and
high leverage; and
potential earnings
disappointments relative
to expectations.
The end result is a
portfolio with a slight
quality bias, investing in
a complex and volatile
market while offering
very low correlation to
traditional directional
strategies and equity
benchmarks.
Luca Dal Mas is
senior multi-manager
analyst at Aviva
Investors
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