“The managers who work for boutiques are, as a rule of thumb, pure and passionate people with strong convictions,” says Jaap Bouma, senior portfolio manager at independent Dutch wealth management
company Optimix. “With the big asset management companies, we feel it is sometimes more about marketing and selling funds, while the smaller boutiques are not like that. They prioritise adding alpha instead.”
Bouma’s preference for small boutique manager has something to do with the philosophy of his own company as well, he says. “Optimix is a small, staff-owned company, just like most boutique managers, and we share the same philosophy. For us, it is all about commitment to clients. And we like an unconstrained, flexible approach to investing, basically just like boutiques.”
Roots in the countryside
Optimix has its roots far away from Amsterdam’s financial district. As Bouma explains: “It was founded as a non-listed investment fund by a financial analyst in 1983 in Groningen in the north of the country to manage his family’s wealth.” The company soon developed into a registered wealth management company, which now manages approximately €1.7bn. It mainly caters for wealthy private clients but also manages some institutional portfolios and advises pension funds about their asset allocation.
Bouma, who is both portfolio manager and responsible for the selection of third-party European and global equity funds, explains: “What makes us stand out vis-à-vis private banks is our tailored advice to clients. We typically have one adviser for 50 clients, compared to 200 clients per adviser at a typical private bank. “We invest about half of our assets under management in third-party funds, while we invest the remainder in our own in-house funds.”
Optimix has five equity funds, covering Europe, the US and the emerging markets, and two fixed income funds. The company also recently bought the Add Value Fund, which focuses on Dutch small-cap companies and won a Morningstar Award in the Dutch equities category last year.
However, Optimix does not invest in mutual funds alone. “As we are macro-driven top-down asset allocators, we can take very specific bets as well. Thereforewe sometimes invest in assets directly,
without using funds. For example, we took a direct investment in Spanish government bonds last
year, as the yields were very attractive and the ECB took a very clear line in supporting the euro with its ‘whatever it takes’ comment. Why would we buy a government bond fund when we can buy the bonds directly?”
When it comes to selecting third-party funds, he applies a set of straightforward criteria. “We like funds which are specialised, in terms of employing a specific strategy or a focus on a particular sector. We also require them to have a high active share, which often actually follows from a strong independent strategy.”
“For example, we own the listed Life Sciences Fund of Amsterdam-based Life Science Partners, which invests in public biotech and healthcare companies,” he says. “Their team stands out because of their vast network and extensive knowledge about biotech.”
Bouma also attaches great value to the benchmark selected by fund managers: “It’s very important that they choose an ambitious benchmark and, most essentially, apply a high watermark.” That brings us to, as he puts it, the “closing piece” of his set of fund selection criteria: costs. “As a company fully owned by its employees, we very much support remuneration by performance, but it must be deserved and shouldn’t be focused on the short term. Besides that, it is essential for us that a manager invests in his or her own fund. “That basically shows us that the manager trusts his own strategy and provides the right incentive to perform well. If we finally have the conviction that all these criteria have been met, we tend to stick to a holding period of at least four years.”
Rather unsurprisingly, Bouma finds boutique managers tend to stick best to his criteria. He specifically mentions two funds: the Sky Harbor US High Yield Short Duration and the Neuberger Berman Emerging Markets Income funds. Interestingly, both are run by teams that were employed by big asset managers not so long ago. The Sky Harbour high yield team joined from French Axa IM, while the Neuberger team left ING IM to start a new emerging market debt fund last year.
“Top managers like these often start a specialist boutique for themselves, like the Sky Harbor team, or switch to another large asset management company which works as a multiboutique and which grants much more freedom to the manager and his team,” Bouma explains. “That’s what happened in the case of [ING IM emerging market debt manager] Rob Drijkoningen.”
The Sky Harbor high yield fund is the only external bond fund Optimix is currently invested in, as the company is now underweight in all other bond classes. “We are pretty underweight bonds, and have a 60% weighting in equities in our balanced portfolio now.”
Though Optimix is known for its dynamic asset allocation strategy, the underweight position in bonds might last a while. “We think interest rates will go up as the macroeconomic outlook continues to improve. To anticipate that, we bought an insurance ETF, which tracks the performance of insurance
companies. We believe they will benefit from higher interest rates, as it brings their future liabilities down.”
Bouma’s team feels tempted to invest in the Neuberger Berman fund mentioned above though, after having abandoned the asset class last year. “Emerging market debt seems very attractive now, with local currency debt yields at 7.5%,” he says. This fund invests in both government and corporate bonds within the emerging markets. By stepping in, Bouma would break his rule not to invest in multi-asset funds. “We don’t like multi-asset funds in general because we want to do the asset allocation ourselves. But we make an exception for emerging market debt, as we are not experienced enough to make allocation decisions regarding government and corporate bonds and hard and local currency.”
Last January, the Netherlands was the second country in Europe to abolish distribution fees for retail investors. Starting this year, investors will have to pay for investment advice separately. Bouma says Optimix’s business is, unlike that of private and retail banks in the country, not affected by the reform. “We have always invested in institutional share classes and have never received distribution fees.”
Instead, Optimix has always charged a management fee of 0.7% and a transaction fee of 0.3%.
While the abolishment of the kickback fee compromises the business model for some players in the Dutch market, it opens up new opportunities for others. “I have heard that end clients have been complaining with their accountants and fiscal advisors about the extra costs they are being charged now. They have started discussions with their wealth manager trying to force lower fees. Meanwhile they are thinking about switching to another company or to executive-only.”