Matteo Pusineri’s Duemme Sicav fund surpassed its target return 1.5% over 3 month Euro libor by a multiple of ten in 2012, making 26%. The return target is a long term, through-the-cycle, average, based on Pusineri’s experience of having managed money 16 years, mainly in private wealth at Morgan Stanley. The return target approximates long term returns from the main asset class traded, investment grade corporate credit. BCM was created by executive directors that left Morgan Stanley in 2005.
2012 was a very good year, where the fund had excellent opportunities for aggressive positioning. The advent of the European Central Bank’s LTRO programme provided the catalyst for a re-pricing of peripheral markets, which BCM began over-weighting in November. The team took encouragement from political landscape changes such as Monti’s appointment as prime minister in Italy. The fund was able to acquire good quality Italian corporate paper at double digit yields, from issuers such as Intesa Sanpaolo. Italian Government bonds were also bought. Ireland and Spain were other peripheral markets where BCM took positions, but Portugal and Greece were not.
Last year the fund also profited from owning bonds issued by American banks. Its biggest such position was Bank of America 5 year bonds, which generated a total return of 26%. These senior bonds from one of the largest banks in the USA went to 111 from 90 and made coupon payments.
Later last year the fund rotated out of financials and banks, and into insurers like Axa and Generali. The manager noticed that the Pound Sterling denominated bonds offered a yield premium of 200bps. Similarly Deutsche Telekom’s USD bonds paid more than its Euro ones. The explanation is that captive retail demand allows for lower yields in an issuer’s local market.
All of this was achieved almost entirely from investment grade credits. The prospectus lets the fund go up to 20% in sub-investment grade, although it has never actually exceeded 10%. The fund is also permitted to go up to 10% in emerging markets or unlisted debt.
As Chief Investment Officer, Pusineri takes top down macro views. The suite of risk and modelling systems includes Drina, Tesla, FinCad, Bloomberg, Beauchamp, and Matlab. Half of the investment process is based on quantitative screening, which identifies the 20% of the investment universe that warrants further research. Chief Risk Officer Gianclaudio Antonelli has more than 20 years of industry experience, which includes having developed internal risk management software and rolling out technical skills across a range of Asian countries. Specialist analysts include Luisa de Giorgi, who covers financials.
Italian and German elections have made the fund a bit more cautious this year. The macro outlook remains weak, but it is supported by politicians and by the authorities. The most common credit rating is BBB+, just into investment grade. The fund is cautiously running average duration, at 2.3 years, that is roughly half that of the iBOXX index. So, the fund is still relatively long of credit, but has started hedging interest rate risk. It is short rates through options including put spreads on bunds and treasuries. Pusineri thinks credit tends to give the early warning for equity markets. He is concerned that spreads may not go much tighter from here. In the US investment grade credits offer just 80 bps over LIBOR. Europe’s spread of 100 bps only seems better before stripping out the peripherals. Futures and credit indices are used for hedging. The fund’s yield to maturity is projected at 5%.
Of 900mm assets at BCM, some two thirds are in credit, with 80-90mm in converts, and most of the rest in balanced products. BCM, which has 900mm of assets, is part of Austria’s C-Quadrat Group, and manages funds on behalf of Duemme’s Luxembourg umbrella funds. Duemme in turn is 50% owned by Italy’s legendary Mediobanca of Milan. The UCITS contains more than 350mm of assets. Daily dealing is offered on the UCITS.