Alternatives are the answer to the Covid-19 conundrum

Tuesday, 10/27/2020

The traditional barbell portfolio of aggressive equities and defensive bonds is no longer enough in today’s investment environment. Investors seeking volatility resilience and alpha generation will need to look at alternative allocations as well – the alternative UCITS fund of funds OYSTER BM Alternativos offers that choice.

Tuesday, 10/27/2020 - 21:00

Launched in October 2019, the tailored product managed by leading alternatives provider SYZ Capital, in partnership with Banca March, has made a 3.9% return, and is up 2.5% year-to-date, leading most of its peers. On the back of this robust performance, the in-demand strategy has broken through €100m of assets – with roughly half of the inflows secured in 2020.

Managed by a team led by Cédric Vuignier, Head of Liquid Alternative Managed Funds, who has two decades’ experience in alternative and hedge fund investing, OYSTER BM Alternativos invests in select equity hedge, event driven, macro and relative value strategies with the aim of providing resilience to market sell-offs.

Quality and flexibility key

The team attributes the strategy’s strong first year to investment allocation, as well as the quality of the managers selected. In the hedge fund space, SYZ Capital’s strong global research capabilities and solid network enables privileged access to niche investments and funds, which are otherwise closed.

Two of the team’s major conviction calls over the period surrounded Japan and convertible arbitrage.

“We have been positive on Japan since the rollout of corporate governance reforms by former Prime Minister Shinzo Abe. As these regulatory changes feed through to business mentalities, we have chosen a manager capitalising on this evolution, who has returned us more than 20%,” Vuignier says.

“Another area we have been positive on for the last three years is convertible arbitrage. We have been exposed to this type of strategy, which benefits from rises in volatility and new issuance since launch and this has contributed about 0.85% to our performance. This is one of our largest positions in a concentrated portfolio of 15 funds.”

In addition, the strategy’s inherent flexibility allowed the team to rapidly reduce strategies with higher beta as news of the spreading Covid-19 virus hit markets in February. Usually monthly committee meetings – where the portfolio management team reviews its positions, guided by the top-down macro views of Banca March – were held weekly since early March, while vigilance around liquidity was heightened.

Vuignier explains: “Traditionally, hedge fund strategies are in the business of buy and hold, but we have the ability to be active and dynamic. Although we have made a few changes since inception – owing to the quality of our research and selection – we were able to react quickly when the Covid-19 crisis hit, making some necessary changes to the portfolio. An aftermath analysis was also done, which triggered a change. We had anticipated a better resilience in drawdowns from a relative value fund. It recovered but, as it did not bring the desired level of diversification, we replaced it.”

Strong partnership

Close collaboration is at the heart of this strategy, which was tailored to meet the objectives of Banca March’s clients and which represents a new revenue stream for the Spanish bank. In addition to the investment meetings, the client has direct access to the portfolio management team at all times.

Vuignier reflects on the importance of this proximity: “A good relationship is a win-win situation. By being closely involved in the portfolio management process and bringing its macroeconomic expertise to the table, Banca March is strongly invested in the success of the strategy.

“is difficult to achieve diversification with the traditional portfolio model of equities and bonds in the current market environment, and investors will need to find new ways to diversify. We are looking forward to partnering with other firms to provide clients with agile volatility-mitigating strategies. A lot of smaller banks and asset managers are not set up to offer this”.

Launched by Marc Syz in 2018, SYZ Capital aims to democratise access to alternatives, which have historically been the preserve of institutional investors. SYZ Capital offers private clients the opportunity to invest alongside the Syz family and Group across a range of strategies, which are uncorrelated to more traditional capital markets. SYZ Capital now has more than €1.5bn assets under management, in liquid and illiquid alternatives.