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Cyrille Collet: « If the systematic model is the heart of our process, our quantitative equity portfolio management advocates expertise of managers»

We believe that the best way to structure an investment strategy is an approach combining systematic quantitative analysis and critical analysis of the manager. A strong belief in CPR AM we call as "quantitative human face"...

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CPR Asset Management, a quantitative equity portfolio management "with human face"

We started with a simple observation, the equity markets are not efficient, there are few exceptional securities, but many attractive securities that we must learn to detect. Also, we believe that the best way to structure an investment strategy is an approach combining systematic quantitative analysis and critical analysis of the manager. A strong belief in CPR AM we call as "quantitative human face."

Our management process "quantitative human face" is thus based on three common sense rules that would summarize a rule of pragmatism over dogmatism. In fact, first, a systematic analysis of securitiesis necessarily supplemented by daily monitoring of portfolio securities through the flow of market information. The second concerns the ongoing research on the selection of securities that allows us to change our model and identify relevant variables depending on market conditions. The third rule is a dynamic construction of the portfolio based on risk estimation (variance-covariance matrix) by the APT model we use for over 14 years.

This recipe applies to a broad spectrum of funds: euro zone or Europe equities, Japanese equities, U.S. and global equities. The aim is indeed to take advantage of the potential of a broad investment universe consists of 8500 values in which the manager selects a maximum opportunities.

One of the major advantages which management uses is our proprietary information system, developed and enriched continuously for more than 15 years by the Research Department CPR AM and equity managers. This system integrates hundreds of optimization parameters (yield, pricing, price dynamic, earnings revisions) to better detect "nuggets" (stocks with high potential). The research team and managers are also keen to test all of the strategies identified in ten or twenty years to test their robustness and durability regardless of the market environment in the future.

The methodology and selection of 8500 securities studied is resolutely quantitative and uses a "normalized" financial rating (from +2.2 to -2.2) to detect attractive securities from 34 sectors and located in five regions of the world

However, even if the model is to provide an average of 90% of the performance, the remaining 10% comes from the expertise of the manager. In fact, each equity manager has a dual expertise manager and analyst. He is thus able to qualify the relevance of selection models and risk values based on market conditions. The team provides ongoing monitoring of different tasks in order to improve the quantitative management approach.

For example, the fact in 2012 to integrate our model of security selection, the dynamics of prices and earnings (used only once in our optimization constraints) allowed us to be much more reactive and seize opportunities investors began to appreciate well before "fundamentals" indicators start moving significantly.

This approach allowed us to record a strong performance on all of our equity portfolios.

Risk control is a key factor of success. Managers perform a permanent control of the overall portfolio risk, managed within a risk allocation established dynamically according to its tracking error (risk deviation of the relative performance of the portfolio against its benchmark). The position of the portfolio in this envelope (relative performance since the last revisions) is a major factor to determine the frequency and nature of movement (trades) impacting its structure.

Our main objective is to offer on the whole range of equities performances beyond regular indices either through our historical funds such as CPR Euroland (€ 300 million in assets, nine years of outperformance of 10 against the MSCI Emu), CPR Middle-Cap France (€ 60 million in assets and regularly award for consistent performance over the long term) or our recent thematic equity funds such as CPR Global Infrastructures launched in 2010 (€ 38 million parity invested in companies in developed and emerging countries) and CPR Euro High Dividend (€ 25 million to select companies with significant and recurring dividends in a portfolio that best reflects the theme and away from conventional indices). This is a bet that we intend to renew each year for our clients.

About the management team shares CPR AM:

The equities management team has 8 managers, 2 assistants and 2 dedicated researchers under the responsibility of Cyril Collet, CFA, CEO of Equity Management. Managers have an average experience of over 10 years. Specialist in quantitative equity through a proprietary model stock selection built and enriched by the managers in collaboration with the research team (Solvency II). CPR AM also extends its expertise on thematic equities through innovative strategies and carriers (aging population, infrastructure). At the end of September 2012, the outstanding equities under management represents more than 3.6 billion euros, or 17% of the total outstanding CPR AM

Cyrille Collet , December 2012

Article also available in : English EN | français FR

See online : How to develop a quantitative model for stock picking ? The CPR AM Approach

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