Fulcrum goes retail for growth

Fulcrum Asset Management is pushing into the Australian market to meet demand for absolute ­return strategies.

Andrew Stevens, CEO of Fulcrum Asset Management. Picture: Hollie Adams

Britain-based global multi-asset manager Fulcrum Asset Management is pushing into the Australian retail market in a bid to capture a chunk of what it says is a strong appetite for absolute ­return strategies in Australia.

The hedge fund already manages $2.5 billion in the Australian market through its diversified ­absolute return fund, which has until now been open only to institutional ­investors.

It is hoping to double its assets under management here with its retail expansion.

Absolute return funds, or hedge funds, have come under fire in recent years because of their high fees and lacklustre performance, but Fulcrum chief executive Andrew Stevens said there was still demand for good value absolute return strategies.

“You can divide hedge funds into two camps: the ones that have high fees, including performance fees, and the ones that offer similar strategies to those funds but at fees that are more comparable to long only strategies,” Mr Stevens said.

“We sit in the latter camp. I don’t think that any manager who charges what some hedge funds charge should aspire to grow their business at the same pace because clients just aren’t prepared to pay those fees.”

The fund’s “top down” approach to investing provides diversification to traditional equity and bond funds.

“We’re not strong believers in security selection, we don’t pick individual stocks or bonds, we focus on the macro. We invest in all asset classes — equities, bonds/fixed income, currencies and, to a much smaller degree, commodities,” Mr Stevens said.

“So, say we have a particular view on the European recovery, which is a view we’ve had for some time now, we naturally want to get exposure to that view in whatever we feel is most effective. When (European Central Bank president Mario) Draghi said ‘whatever it takes’ in 2012, we got exposure through currencies. Then we got exposure through a mix of currencies, equities and fixed income markets. Currently the bulk of our exposure to ­Europe is through equity markets, through futures.

“If you want to have a more granular exposure to a particular theme, say US banks, we can do that through a basket bundle of stocks. What we don’t want is single stock risk.”

Mr Stevens, who co-founded Fulcrum in 2004, is broadly positive on equity markets, especially in Europe, but says emerging markets are at risk from a rising US dollar.

“We like equity markets right now — we don’t feel they’re particularly expensive — but we don’t have any emerging market exposure as we’re slightly worried about them. The dollar has sold off on a trade-weighted basis by about 10 per cent this year and we think that’s probably stretched, so we expect the dollar to stabilise and possibly strengthen, which would probably be bad for emerging markets.”

Within equities, Europe is the market with most potential for ­returns.

“Our view is that Europe has a lower risk premium, equities are in a strong growth and earnings cycle, it has a highly accommodative central bank and relatively cheap valuations.

“We have also recently increased our exposure to Japanese equities, taking advantage of ­recent weakness, despite continued robust economic data.”

Dismissing talk of markets being overvalued, Mr Stevens said looking at price performance and saying equities were expensive was not valid, “because in many cases the returns year-to-date have been due to a recovery in earnings”.

“In France, Germany and Spain, more than 100 per cent of year-to-date performance is actually earnings growth. Their PEs have actually contracted.”

Core themes that the asset manager is focused on include global expansion, most notably a European recovery and renewed profit expansion, policy divergence between Japan and the US Federal Reserve, and geopolitical opportunities with US politics and excessive Brexit pessimism.