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Satellite system

In a crowded multi-manager sector, OPM CIO Tony Yousefian cites the company’s direct UK equity exposure and technical market analysis as major differentiators. The firm’s process is built on a core/satellite approach, with the former fund holdings reflecting longer-term strategic views.

The satellite element involves shorter-term tactical calls, which the managers implement via direct equities, long and short ETFs and structured products.

Positions are informed by detailed technical analysis, with Yousefian and team poring over charts to establish where markets are heading.

He says: “We basically analyse the major indices to produce short, medium and long-term expectations on each, which informs asset allocation on the funds and which managers we want to use. For me, a large part of our job is to identify individual manager’s styles and have the conviction to go with them when such an approach is likely to outperform.”

Looking at recent conditions, Yousefian says sentiment was poor at the start of summer, with little volume predicted and the tough macro background seemingly getting the upper hand over ongoing positive corporate results. OPM took its portfolios defensive and increased cash weigh-tings but the team’s analysis noted a change in market mood through September.

Yousefian says: “Volumes started picking up and the market slowly started appre-ciating the good news and offsetting the bad with the expectation of imminent quantitative easing.

“Recent better than expected third-quarter GDP figures from the UK may delay QE2 but we feel it is still likely in the first part of next year. We have yet to see the full impact of the recent spending cuts and the first hit will come to consumer sentiment so our view is that QE will be postponed rather than cancelled outright.”

In the US, however, the OPM team says the further round of money printing should help global equity markets move forward until the end of the year. To play this call, Youse-fian started reducing defensive positions at the end of September, moving to fully invested, and also removed a short bet on the UK market.

“We have added to direct UK exposure across a few stocks and also increased our core emerging market weighting with vehicles investing in Brazil and China.”

OPM has introduced the recently launched Allianz Brazil fund plus Insynergy Absolute China – outsourced to Gam – as well as increasing a core position in Aberdeen’s emerging market franchise.

Yousefian says: “Risks to these calls are not so much a double-dip recession – with consensus moving against that – but rather the fact that so many countries are looking to export their way out of trouble. With so many countries effectively devaluing their currencies to achieve this, you have to ask who is on the other side of the equation and revaluing – but we remain positive as long as this settles and avoids a lurch into protectionism.”

As a longer-term theme, OPM remains underweight in developed nations and overweight in developing – expecting macro and currency strength to reside with the latter as the West grapples with huge burdens.

That said, Yousefian notes some concerns about inflation in certain emerging economies although he feels governments currently have the situation under control. In the short term, the team has increased its European position from underweight to neutral, topping up a stake in Artemis European growth.

Yousefian sold down his holding in this vehicle in 2008 – as the group’s SmartGarp quantitative model underperformed – but believes that European growth has turned the corner in more normalised markets.

He says: “What SmartGarp does is compare immediately available data on companies with previous quarters but that cannot function properly in the extreme volatility we saw in 2008 and early 2009.

“Now markets are reacting to news as they should do again, we are confident that Artemis European growth can return to outperformance.”

Like many wealth managers, OPM makes wide use of bespoke structured products to express short-term market views. Early last year, for example, they had a one-year stability note on the S&P 500 in place which paid 20 per cent unless the index rose or fell by 40 per cent from a starting level of 985.

According to Yousefian, using these satellite vehicles allows him to dampen volat-ility without killing upside. He can increase or decrease risk depending on market views, adding or withdrawing beta to the core portfolio.

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