RPT-Fitch Assigns Lombard Odier's Europe High Conviction Fund 'Strong' Fund Quality Rating
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Sept 9 (Reuters) - (The following statement was released by the rating agency)
Fitch Ratings has assigned LO Funds - Europe High Conviction (EHC) a 'Strong' Fund Quality Rating. The fund is managed by Lombard Odier Investment Managers (LOIM).
KEY RATING DRIVERS
The 'Strong' rating reflects the fund's disciplined approach to investing within a well-defined, narrow investment universe. All investments are segmented into three categories, allowing a focus on only the best ideas within the specified universe. The rating is supported by the team's risk discipline, which is strongly embedded in the fund's investment philosophy, and the supporting framework of LOIM.
EHC is a sub-fund of LO Funds, Lombard Odier's Luxembourg SICAV which is UCITS compliant. Launched in 1997, the current investment process has been in place since November 2010 when Marc Bataillon (Lead PM) took charge of the fund. The fund invests in Western European equities, with clear sector omissions. Structurally, the fund does not invest in financials, oils, metal & mining. Other sectors may be excluded, for example, if there is significant government intervention. As of end-July 2013, EHC had EUR457m of assets.
The fund adopts a high conviction, bottom-up approach, focusing on diversified investment opportunities. Portfolio construction is aided by segmenting investments into the three categories: High Quality Companies, High Growth Companies and Corporate Event Candidates. The fund is designed to outperform the MSCI Europe index over the long term, in all market environments.
The team conduct its own proprietary 12-point risk monitoring process on a weekly basis. These include exposure limits (for example, maximum 7% per stock), fundamental risks (for example, balance sheet leverage) and trading risks (for example, liquidity). This ensures that the fund is suitably diversified from a risk perspective, despite investing in a concentrated portfolio of typically 30-40 securities.
The fund benefits from a strong set up, with Mr. Bataillon ultimately responsible for the fund. Two co-PMs, Cyril Marquaire and Peter Dionisio, manage the fund on a day-to-day basis. The PMs have 15 years investment experience on average. Two additional analysts and one operational staff make up the team. The fund also benefits from LOIM's trading desk and overall independent risk control framework.
The current strategy has a track record of less than three years at LOIM, and therefore Lipper Leader scores are not yet relevant. The investment strategy has a strong track record from when it was implemented in the long-only Selectium Opportunities fund (from October 2005 to June 2009). This was managed at Selectium Capital, a French hedge fund company Mr. Bataillon set up in 2003. The fund was Cayman Island domiciled, and could therefore invest up to 100% cash, which protected the fund in 2008. However, in other periods, such as 2006 and 2007, the strategy was fully invested, and comparable with the EHC fund. Fitch has considered the track record of the strategy at Selectium and LOIM in conjunction when assigning its 'Strong' rating.
LOIM is the asset management division of the Swiss private bank Lombard Odier & Cie (AA-/Stable/F1+). It manages USD42bn for institutional investors, third-party distributors and private clients. LOIM manages USD7bn in equity products, of which the team manage USD940m of assets.
Fund quality ratings may be sensitive to material changes in the investment or operational processes or market risk profiles of the fund. A material adverse deviation from Fitch's guidelines for any key rating driver could cause Fitch to downgrade the ratings. For example, notable structural deterioration in the fund's performance or departure of key investment professionals may cause a lower rating. Fitch may upgrade the rating if there is further consolidation of the strategy's track record at LOIM.
Fitch's Fund Quality Ratings combine Fitch's experience in qualitative fund analysis with rankings and performance data from Lipper, a Thomson Reuters company. Fitch's Fund Quality Ratings offer an independent, forward-looking assessment of a fund's key performance and risk attributes and consistency of longer-term returns, relative to peer group or benchmarks. The ratings focus on the fund manager's investment process, key fund performance drivers, risk management, and the quality of the fund's operational infrastructure.
For more information, please see www.fundmanagement.fitchratings.com
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Link to Fitch Ratings' Report: LO Funds - Europe High Conviction
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