“Many managers are tempted to make large regional, country and sector calls in addition to stock picking. It’s difficult to find consistent, robust alpha with managers who do so many different things at the same time,” says Van Wechem.
“For our equity portfolios, we are looking for true stock pickers who extract a type of alpha that is not captured by style exposures,” he adds. Over the past few years, Oyens & Van Eeghen have gradually reduced the share of active management within their equity portfolios to about a third, with the remainder of their equity assets allocated to market-cap weighted ETFs and so-called smart beta, or factor-based solutions.
Fixed income – the active paradise
While Van Wechem struggles to find many equity managers who consistently outperform their benchmark, he finds plenty of choice in fixed income.
“Active managers have been more consistent outperformers in bonds than in equities, so we are completely active in fixed income,” he says.
The fact that fixed income markets do no lend themselves as well to passive management as equity markets adds to Van Wechem’s preference for active management in this asset class.
Tracking market cap-weighted indices in fixed income is inherently flawed, he says, as there is no indication that investing in the most indebted countries or companies will give you the best returns. Rather, it’s the opposite.
“So smart beta solutions in fixed income would be a logical development. But I don’t see the necessity yet, really, because many active managers take a similar approach and consistently outperform the index,” he says. And they do that charging much lower fees than equity managers, he adds, removing another incentive to switch from active to passive in this area.
When it comes to active bond managers, the Dutchman looks for focus too. “We prefer credit managers who don’t take duration bets and focus on credit risk alone, as this provides a much more robust basis for alpha generation in our experience.”
His active managers are about to be put to a real test, Van Wechem realises. “Credit spreads have narrowed enormously. In response we have observed our active managers moving towards higher quality bonds in their respective markets. The risk-return perspective looks a bit better in that spectrum.”
Interview continues on the next page