The Source of Alpha
Case for FIS Managers
At the core of the FIS Group philosophy is a belief that entrepreneurial and emerging managers provide an essential element in the capture and delivery of investment alpha.
The managers we select are distinct—high conviction, informed, and pursuing an individual alpha thesis that zeroes in on specific market inefficiencies or opportunities. Above all they are nimble; research indicates that a manager’s potential outperformance advantage diminishes with increased AUM, resulting in portfolios that are sluggish and unresponsive to change.
Combined with our strategic asset allocation planning and macro-driven tactical positioning, FIS Group managers offer solid potential to find and exploit opportunity.
Manager Profile: Ativo Capital Management
A Versatile Framework for Equity Investing
Ativo Capital Management provides a compelling example of how investment research and discipline can support the development and operation of a versatile and adaptive platform suitable for multiple asset classes.
The Chicago-based manager begins with the core philosophy that stock pricesreflect companies’ performance in terms of cash flow rather than reported earnings. Ativo analyzes and ranks individual companies globally on the basis of Cash Flow Return on Investment through a proprietary, systematic process that adjusts for differences in national accounting practices. The Ativo team then considers the measured attractiveness of those individual stocks in the context of the macroeconomic environment using both quantitative and qualitative disciplines. A portfolio of these fully vetted stocks is then constructed through an optimization process.
The Ativo process has been successfully deployed for FIS Group clients for international equity and emerging market equity exposure. The strategies exhibit a stable return pattern and have been especially effective in delivering positive relative returns in both advancing and declining markets. An international small cap equity strategy is in development. Ativo provides a vivid example of how a successful investment engine can identify and capture opportunity in a variety of markets and asset classes.
Graduate Manager Profile: Hexavest
Global Equity Investing with a Top-Down Quantitative Framework
Hexavest Inc. (formerly Hexavest Asset Management) is a true success story for the FIS Group approach to identifying and funding talented and differentiated emerging managers. Now a graduate of the FIS Group platform, the Montreal-based manager came into our fold in 2009 when the organization had $726 million in assets under management, of which only $9 million came from U.S. investors.
The company was formed in 2004 by a team of investment professionals who split off from the investment arm of National Bank of Canada. We began review and analysis of Hexavest in 2007. We were attracted to the company’s demonstrated ability to quantitatively analyze macroeconomic factors and translate them into effective portfolio allocation decisions by region, country, currency, and sector. The firm’s ability also to contribute positively to returns through security selection reinforced for us the team’s organizational strength and analytical depth and discipline.
In addition to a well-defined alpha engine, the Hexavest organization presented a solid business culture with well-developed infrastructure and expertise in non-U.S. markets. Hexavest offers proof that investment talent, not geographic location is key to obtaining advantage in the information age.
FIS Group clients benefited from the formidable investment expertise and process of Hexavest at a stage when the young firm was especially focused and nimble. We are proud to have played a role in the development of this manager.
Manager Profile: Huber Capital
An Informed, Contrarian View
Huber Capital Management shines as testament to the value of culture and discipline in an investment management organization.
Founder and Chairman Joseph Huber could have continued to allow his track record and his fine investment pedigree to guarantee a corner office in almost any of Wall Street’s premier firms. But the veteran portfolio manager had already done his stints at Goldman Sachs, Merrill Lynch, and Hotchkis and Wiley. Instead he brought together like-minded individuals to build a boutique organization that would focus on what really matters.
Los Angeles-based Huber Capital never hesitates to part from the crowd in pursuit of value. The team seeks to exploit equity market inefficiencies that are created by irrational investor behavior. Prospective holdings identified through Huber’s bottom-up process are subject to rigorous fundamental security analysis and thorough organizational review.
We value the firm for its insight and its singular, uncompromising approach and willingness to be different. Huber manages U.S. equity assets for FIS Group clients.
Graduate Manager Profile: OakBrook Investments
Precision Vehicles for U.S. Equity Exposure
OakBrook Investments sustains a research-oriented culture that delivers highly efficient and precise investment portfolios. The Lisle, Illinois-based firm has played an important role for FIS Group clients in providing actively managed and well-defined portfolios with controlled tracking error that can serve as a complement to the portfolios of more concentrated managers.
At the core of OakBrook’s approach is the recognition that inefficiencies in the domestic large cap equity market are few and that harnessing them for investor benefit requires a framework capable of identifying and acting on opportunity swiftly. The OakBrook team follows the “auction theory” of pricing, which holds that a stock’s market price doesn’t reflect the consensus view of investors but rather the change in investor expectations of the stock. OakBrook’s tightly managed, quantitative approach focuses on investor expectations as reflected in changes in analysts’ earnings estimates for individual stocks. OakBrook is a valued strategic partner as a result of the firm’s client-focused view, which drives the design and delivery of customized solutions.
FIS Group clients have benefited from the defensive quality and stability of returns presented by OakBrook.
Although global growth declined in Q1, as anticipated in our Q1 2019 Outlook, risk assets continued their December 2018 romp as a result of an apparent de-escalation of U.S.-Sino trade tensions and a decidedly dovish pivot by G10 Central banks (See Table One). Some US...read more