Nico Baumbach is a Fund manager for HANSAINVEST Hanseatische Investment-GmbH. He was born in Bremen in 1970. In January 2012 the chartered economist took over the management of fund of funds for HANSAINVEST. Since 2003 he is working as a senior portfolio manager for equity and fund of funds at SIGNAL IDUNA Asset Management GmbH. Before that Baumbach, a fully qualified banker from Sparkasse Bremen, started in 2001 as a member of the equity portfolio management at HANSAINVEST. We were interested to find out how he selects investment mangers he allocates to and what his views on bond investments in the current situation are.
Ucitsindex.com: Mr. Baumbach, you are responsible for seven UCITS fund of funds. What are you looking for when selecting managers to invest in?
Nico Baumbach: When selecting managers to invest in I am concentrating on active managers only. Therefore ETFs are out of question. The active managers should take their jobs serious: That’s why I favour funds with a significant tracking error. Furthermore I want to have managers that are flexible enough to adopt their portfolio to new market developments and do not hang on to a certain investment style, e.g. value when the market favours growth stocks.
Besides that the fund managers should also be able to steer their portfolio through drawdowns – since it is always the risk adjusted performance that matters. Based on all that the respective fund should deliver a consistent performance – and therefore position itself through all market times in the upper third of its peergroup.
Ucitsindex.com: As you are looking for good risk-return profiles: what do you think of long-only bond investments in the current market environment and what could be an alternative from your perspective?
Baumbach: In the current market a long-only bond investment is rather challenging, not to say problematic. If you want to be successful with bonds you got to have the permission and the will to act flexible, for example change the duration or the credit risk of your portfolio significantly.
Alternatives in my point of view can be found in the group of absolute return funds, for example in the sector of global macro or long/short credit.
Ucitsindex.com: Do you also invest in UCITS alternative funds?
Baumbach: Generally our balanced portfolios consist of long-only equity funds and bond funds. Our structure allows us to invest in absolute return funds but we have only small investments in these strategies at the moment. We are watching alternative funds though as a possible substitute or supplement to our long only bond funds. Our focus is on funds which are uncorrelated to the bond side and to the equity funds. And at the moment there are no such investments in our fund of funds.
Ucitsindex.com: Does your own investment approach within the seven UCITS funds of funds include an absolute return approach then or how do you manage market risk?
Baumbach: Only HANSAaccura (ISIN DE0009766204) is managed like an absolute return fund since its goal is not to loose money. For two other fund of funds, HI Topselect D (DE0009817726) and HI Topselect W (DE0009817718), we implemented a risk overlay in the middle of last year. The risk overlay should give downside protection for the fund of funds and should also go “risk on” when the market has found its bottom.
We avoided to set-up a classic trend-follower looking on price movements of the market only. Instead we are observing the risk-structures of the market to find anomalies which indicate a possible drawdown. By doing this, the model tries to minimize false signals and only to avoid the big downward moves. Because the equity market is moving more or less upwards since we implemented the model there were no alarm signals since then.
Ucitsindex.com: Thank you for the interview.