19 May 2015 Olivier Nobile, CEO & CIO, Silver Time Partners – LOQ Equity Europe Patrimoine
Olivier Nobile is CEO of Silver Time Partners. He also acts as co-CIO alongside Aurélio Rodriguez. The company manages the SILVER TIME LOQ Equity Europe Patrimoine Fund.
Olivier has a Masters of Finance degree from the ESSEC Business School and a Masters in Engineering from ESTP, a French institution for engineering. Between 1997 and 2012, he built up strong experience in risk arbitrage and multi-assets systematic trading at Crédit Agricole CIB and Boussard & Gavaudan Asset Management (BGAM). Olivier continues to develop Silver Time Partners which he set up in 2013.
LuxHedge: Silver Time Partners is a relatively new manager. Could you let us know who your early investors are and how you convinced them to invest €30M in your funds?
Major investors include one of the leading independent asset managers in Europe and one of the wealthiest French families which have been convinced by our philosophy of observing the markets differently. We have built a strong relationship of trust with these investors for over a year before they took the decision to invest in our funds. Several aspects of our company convinced them to support us.
First, we have a robust and experienced investment team which was previously in charge of the systematic investment at BGAM, a $2bn hedge fund. Our COO, Bertrand Patillet, is also the former deputy CEO of Cheuvreux. Our CMO, Romain Stephan, is a former MD at Citibank.
Most of all, I think their decision was primarily motivated by our sound approach to observing equity markets, our diagnosis, our investment decisions as a result of that diagnosis and our high level of transparency. We offer investors systematic and unconstrained equity UCITS funds. This means we have a more objective approach to equity investment by addressing the key area of concerns, especially in terms of allocation (cash/equities), timing and stock picking. Our risk management strategy targets significant capital appreciation over the long term.
LuxHedge: Could you please inform us on the main characteristics of your fund LOQ Equity Europe Patrimoine?
Our equity long-short UCITS-compliant fund was launched in September 2014. We run a proprietary quantitative time-centric model identifying long-term trends and selecting active leading stocks. By long-term trends we mean trend duration from 6 months to many years. The fund is unconstrained and systematic, investing in European equities. It has a long bias with a maximum net exposure of 50%. We target a Sharpe ratio significantly above 1.
Finally, the fund is domiciled in Luxembourg and has weekly liquidity. CACEIS Bank Luxembourg is our central administrator, UBS London our prime broker, and PwC our auditor.
LH: How did you develop the fund model?
Whatever the asset class, financial markets are always punctuated by major trends in which leaders can be found. These market leaders have the distinction of generating long-term yields significantly higher than average.
Of all the asset classes, equities provide an attractive investment framework to detect leaders given the large number of listed and liquid shares in the world (more than 10,000), and their almost unlimited potential price increase. Some equities may see their prices being multiplied five or ten times, a feature that is rarely observed in other asset classes (commodities, currencies or bonds).
However, there are two main difficulties involved in taking advantage of the major trends on the equity markets:
- Firstly, the vast majority of investors have behavioural biases, related to human emotions, which will prevent them from benefiting from these major trends. In other words, while financial markets can be irrational, they are always coherent from an emotional point of view. Even if a rational investor has no reason to sell a stock that performs, he/she will often prefer to sell early just to avoid the anxiety of losing what he/she has previously gained. Conversely, and against all rationality, the same investor will hold onto a losing position, which nevertheless mobilises capital, to avoid the discomfort of losing money and recognizing a mistake. Choosing the right stocks and avoiding the bad ones is a difficult task; the question of staying invested in winning stocks long enough makes investing even more difficult.
- The second drawback lies in the strong mismatch regularly observed between the fundamental value of a listed company and its share price. The share price often integrates all kinds of perceptions and future expectations, which are sometimes very far from the reality of the company. Thus, the fundamental world and the markets coexist. They can meet but they are very difficult to analyse in parallel. Searching for a cause and effect logic between these two worlds is very complex because you never know what is already discounted by the market. If the fundamental value of a company changes two to three times a year, its share price varies every second.
LH: How does the model actually work?
We don’t perform fundamental analysis on the underlying equities. We don’t pay attention to what people say, we monitor what they do. Our model focuses on the observable factors: market price, time, and volume. Analysing those factors helps us to identify the leading stocks that we believe are in a long-term trend.
The portfolio is constructed and managed in a disciplined and systematic manner. Every quarter, we update our leading stocks selection and undertake a rebalancing exercise by including those with the most positive signals based on the strategy set out above. We also start every new year fresh, with all positions rebalanced to reach an equal-weighted portfolio.
LH: What type of stocks do you focus on?
We focus on liquid European stocks. The investment universe includes around 800 stocks that we narrow down to 120 by selecting only those with the strongest buy signal. We aim to focus on those stocks providing the best probabilities of long term trend, and we include them in our portfolio in an equally-weighted manner. As a result, each stock accounts for around 0.8% of the total portfolio at time of initiating the position.
LH: It is obviously quite early to discuss your fund’s performance. After a few months, do you have any comment to make?
Since inception on September 5 2014, Silver Time LOQ Equity Europe Patrimoine has returned +2.7% in 2014 with a volatility of 7%. We partly explain these results by our virtually non-existent exposure to oil & gas and basic resources sectors in Q4 2014.
The fund rose slightly in 2015 by +1.3%. This return was impacted by central bank interventions: the decoupling of CHF from EUR by the Swiss National Bank and the implementation of QE by the ECB caused sudden changes in prevailing long-term trends in equities.
LH: Risk management is an important concern for investor, maybe even more when investing in funds driven by a systematic model. How do you proceed in this regard?
As we mentioned before, one of our main objectives is to stick to the trading plan. A single stock can’t significantly impact the portfolio: we are able to liquidate any position within one day if we observe long-term trend inversion for that stock or if a stop-loss is triggered. We believe that we can liquidate the entire portfolio in less than three days.
In order to outperform during bear markets, we are systematically lowering our exposure to equities in unfavourable markets and keeping a cash pocket instead. The fund strategy does not stipulate any minimum allocation to equities.
Given the systematic nature of the strategy, the investment team is only checking the coherence of each order before executing it. We also monitor the main risks on a daily basis: counterparty risk, market risk, liquidity risk, etc…
LH: You’ve explained how you select stocks on the long side of the portfolio. Could you discuss a bit the short side?
Our core equity long portfolio is hedged at 50% with futures on the Eurostoxx50 in order to lower the volatility and control as much as possible any potential drawdown of the fund. Our investors benefit from this strategy since our maximum net exposure is clearly defined, which provides an efficient way of benefiting from market trends while limiting market risk.
LH: Could you give us one or two examples of past trades you have done?
I would like to mention in this case our best and worst trades recorded in 2014. Given their excellent long-term dynamics, Royal Caribbean and Abengoa were initiated on September 5 in the portfolio. Royal Caribbean, still held at 31 December, gained 52% over the period. However Abengoa substantially fell due to a refinancing issue speculation. We sold it on 14 October with a 32% loss. This rumour was confirmed a month later on 14 November causing a further 50% decline.
LH: Does the portfolio exhibit any particular geographical bias, i.e. a strong exposure to any specific European country?
We invest in the equities having the strongest probabilities of long term trend. As a result we are subject to specific sectors and countries’ exposures.
However, in order to manage our risk, any sector or country can’t exceed 20% of the portfolio. UK is the only exception with a maximum exposure of 33%.
LH: What are your views for 2015? What is to be expected?
The current market situation is clearly unusual and uncertain given the massive quantitative easing in Europe, currency moves, falling commodity prices, plummeting bond yields and inflation expectations. Never before have we noted central banks intervening so much and for so long, and injecting such a large amount of liquidity into the system. Distortions in the financial markets are increasing and so far equities seem to be benefitting the most from this situation. We continue to invest in the stocks presenting the highest probability of a strong long term trend.
LH: Can you tell us about your latest activities beyond the fund?
We are continually developing our product range. We are demonstrating test portfolios in the US, Latin America and Japan to potential investors. We are also working on range of global equity funds which will target Global Large Cap Developed Markets, Global Mid & Small Developed Markets and Global Emerging Markets. Finally, we are also designing a pure equity long short market neutral Europe.