Yield chasers need to be more cautious

25-Oct-2016

By Daniel Paperny

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The pivot towards an environment of low returns and low interest rates must not tempt investors to abandon risk management in their search for yield, according to Tribeca Investment Partners.

Speaking to financialobserver, Tribeca portfolio manager Sean Fenton said fund managers had learnt many lessons in the aftermath of the global financial crisis of 2008, yet it was important to revisit them in a climate of increasingly low returns.

“Given how long this environment has persisted, you’ve seen a continual erosion of risk aversion as more and more investors chase after yield,” Fenton said.

“In general, investors need to be cautious about taking risk and I’d be particularly cautious about chasing yield at the moment because certainly there’s a risk that inflation’s coming back, even in just a small way, which could upset the price for many.”

Fenton said Tribeca had followed a very strict investment philosophy in adapting to the new economic paradigm and that had translated into its management of the Tribeca Alpha Plus Fund.

Launched in 2006, the $76.7 million fund has outperformed the S&P/ASX 200 Accumulation Index benchmark in seven out of nine financial years since its inception 10 years ago, and took both long and short positions in the Australian share market.

The flexibility enabled more active decision-making and allowed the fund to meet its alpha target of 5 per cent to 6 per cent while maintaining a diversified portfolio, Fenton said.

“It sounds pretty simple but actually doing that successfully is pretty complex and whilst a lot of investors distil investment philosophy down to simple formulas or an easy message … the world’s just not that simple.”

He argued that while having a “cookie-cutter” approach to investing might work in some circumstances in terms of identifying certain investment opportunities, it was not a robust approach to investment in the long term.

On the contrary, portfolios needed to be sufficiently diversified to consistently reflect the risk and sentiments of a changing global market environment, he said.

“Our investment process is unique in a way that does blend together quantitative and fundamental approaches to investing and recognises the strengths and weaknesses there [of both approaches],” he said.

“A quantitative approach is quite rigorous – it’s objective and it gives you a little breadth in terms of the range of stocks that you can evaluate from time to time.

“That breadth enables greater diversification, it improves success and it gives greater risk-return trade-offs through time. That can be really powerful as it looks to leverage off behavioural biases that a lot of investors exhibit.”

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