Truchi instead likes managers who are in control: “If everything is going well, it’s not a big deal if you don’t know your stocks. When the stock goes up, the analysts are right. But if it goes wrong, the manager won’t be able to respond quickly enough to market developments or company announcements if he doesn’t know his stocks. He’ll have to have meetings with analysts, assess the situation before taking a decision. What I want to see in a manager is that he can respond quickly to a drawdown and evaluate whether to exit the position or double it. A manager has to be able to take swift decisions. That’s a basic requirement.”
Macro management
Making the right calls is not only the job of a fund manager though. Truchi himself, who manages two funds-of-funds, has to anticipate the powerful macro forces that shape the fixed income universe.
Probably the most urgent challenge to deal with is the threat of rising yields. Truchi has addressed this by aggressively cutting the duration of his funds-of-funds from four years to less than 18 months. He has also been making a move into alternative credit, with mixed results.
“We have allocated some money to a long/short credit fund, but it has disappointed so much that we are thinking about changing that. The manager’s security selection hasn’t worked out and he has also gone net long and short at exactly the wrong times,” notes Truchi, who can allocate up to 30% to alternatives. His investments in a cat bond fund (the GAM Star Cat Bond fund) and two senior loans funds have been performing better.
Holding cash is also an option to mitigate volatility and Truchi doesn’t mind owning managers who have a lot of cash in their portfolios, such as Bill Eigen whose JP Morgan Income Opportunity Fund holds 24.4% cash, as long as they have good reasons.
“I don’t like people who say ‘I’m not paying a manager to hold so much cash’. You’re not paying a manager to hold cash, but to manage risk. If he does that by holding a lot of cash, that’s not necessarily a problem for me. I’m pragmatic in my approach.”
