EBM: Flexible management is wildly popular with investors right now. Henri Chabadel, welcome. You are Head of Sigma fund management at Groupama Asset Management. Would you please tell us what flexible management is all about?
Henri Chabadel (HC): Flexible management describes a new breed of products that actually emerged in 2010. It aims to deliver a level of absolute performance – 4% per year, 5% per year, 6% per year – to individual or institutional investors, independently of market conditions – in other words, in both bull and bear markets.
Of course, along with this objective, we have risk limits. They are expressed either in terms of volatility, value at risk or a maximum budget for loss for a given horizon, but beyond these constraints, the manager is completely free to construct the portfolio as he sees fit based on market conditions. That means that he can invest in whatever asset classes he believes will perform best, so that, in general, the products are made up of all asset classes. It also means that we expect the manager to be especially responsive in allocating the portfolio, so that he will get more out of bullish than bearish phases. This asymmetry is truly a hallmark of flexible management products.
EBM: Why is flexible management so popular with investors these days?
HC: Investors’ attraction to flexible management products makes perfect sense when you look at the last few years in the financial markets. In 2007, alarms started to go off. Then in 2008 the market plunged. And 2009 was another tough year for investors, with a steep drop followed by a sharp recovery. On top of that, the crisis was still having effects in 2010.
Financial markets have become harder to read, and it is harder to know what to expect. There are many asset classes that can be used. In these times, it’s particularly hard for an investor to settle on the right portfolio to hold to achieve a targeted performance.
This is where flexible management really solves a problem for investors, because the manager, the asset management company, focuses its resources on the allocation to deliver a given performance profile and risk profile to the client.
EBM: What type of investor should consider your Groupama FP Flexible Allocation fund?
HC: Groupama FP Flexible Allocation was created for all types of investors. First of all, it’s for individuals, since they often have the hardest time trying to keep up with markets that are tricky, volatile, or have no clear direction. And there, clearly, the Groupama FP Flexible Allocation fund works well, because its wealth management profile is designed to cushion the declines and participate fully in the market’s upward phases. This gives individuals a real solution. It helps them to construct the best portfolio to meet their investment goals.
Beyond that, Groupama FP Flexible Allocation is suited to institutional investors. First of all, they will find it useful for diversifying their existing investments. At the same time, it offers an attractive relationship between risk and return, and that will help them to deliver on their own performance objectives. And then, the manager – the management company – will offer contrary views and ideas on the markets that can help institutional investors to construct their allocations.
EBM: What are your fund’s performance objectives?
HC: Groupama FP Flexible Allocation has an annualized performance objective of 7%, with a five-year investment horizon. The performance objective goes hand-in-hand with a risk budget, expressed in volatility and in maximum loss for that time horizon. Volatility must be less than 8%, and the maximum that we would be allowed to lose is 10% on any one-year time horizon.
Beyond that, the product’s profile is very distinctive. We try to cushion the declines. We expect to participate more fully in winning phases than in losing phases, so that we can deliver an asymmetrical product. We also do our best to eliminate from the performance profile any extreme returns, whether on the upside or the downside. Our aim is to construct consistent performance.
EBM: Henri Chabadel, Head of Sigma fund management at Groupama Asset Management, thank you.
HC: Thank you.
