RPT-Fitch Assigns Parvest Diversified Dynamic 'Strong' Fund Quality Rating

Thu Jan 23, 2014 8:31am EST

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Jan 23 (Reuters) - (The following statement was released by the rating agency)

Fitch Ratings has assigned Parvest Diversified Dynamic a 'Strong'™ Fund Quality Rating. The fund is Luxembourg-domiciled and managed by THEAM, a member of BNP Paribas Investment Partners (BNPP IP).

KEY RATING DRIVERS

Fund Presentation

Parvest Diversified Dynamic is a sub-fund of the Parvest Luxembourg SICAV with EUR65m of assets at end-December 2013. Launched in 1997, the fund was managed under a traditional balanced strategy until December 2009, when it switched to the current flexible multi-asset and quantitative model-driven investment approach. The fund targets 7.5% volatility with a stable risk budget allocation across asset classes while keeping leverage below 150%.

Investment Process

The funda€™s central assumption is that volatility is a robust indicator of market direction. Its capital-weighted asset exposure is adjusted according to pre-defined risk allocation targets and assetsa€™ volatility so that the funda€™s overall volatility remains broadly stable. The risk budget target was defined following a thorough back-testing process. The fund would nevertheless be challenged in achieving its target should model assumptions prove unstable over a prolonged period.

Portfolio construction closely follows rebalancing signals from a proprietary quantitative model. The fund is typically invested in a low number of securities, primarily exchange-traded funds (ETFs) and futures, covering global equity, fixed income, commodities and real estate markets. Constraints on leverage at portfolio and asset class levels provide effective risk control, preventing excessive exposure to any one asset class.

Resources

The fund is managed by two experienced absolute return portfolio managers. BNPP IPa€™s centralised financial engineering department provides quantitative research, and quantitative model development, back-testing and maintenance that underpin the portfolioa€™s strategy. The operational and IT environment built around Sophis Value and Excel add-ons provides for efficient workflow, matching the needs of the fund, and is scalable and well-integrated.

Track Record

The fund has achieved a Lipper Leader score of four over three years. It has behaved, on average, in line with its volatility objective and delivered lower drawdowns (peak to trough value declines) and better Sharpe ratios (risk-adjusted performance measure) than traditional balanced strategies.

Asset Manager

Established in 2011 and fully owned by BNPP IP ('Highest Standards' rated by Fitch), THEAM, the fund manager, is dedicated to indexed, active systematic, guaranteed and liquid alternative products. BNPP IP managed EUR478bn of assets in total at end-September 2013. For more information on BNPP IP and THEAM, see Fitch's asset manager rating report dated 17 December 2013.

RATING SENSITIVITIES

The rating may be sensitive to material changes in the investment or operational processes, or in resources dedicated to the fund. A material adverse deviation from Fitch's guidelines for any key rating drivers could result in a downgrade of the rating. For example, this may be manifested in significant structural deterioration in the fund's performance or a material deviation from the volatility objective of 7.5%. Key person risk is limited for this fund, but model risk exists. Model error or inability to adapt to changing market conditions may also put pressure on the rating.

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: Parvest Diversified Dynamic

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