HELSINKI CAPITAL PARTNERS€¦ · § The excess return of value stocks over growth stocks globally...

Asset management to be proud of. TM


January2019

HELSINKI CAPITAL PARTNERS


HELSINKI CAPITAL PARTNERS HCP QUANT FUND

A NON-UCITS FUND INVESTING IN SMALL- AND MID-CAP STOCKS


Helsinki Capital Partners (HCP)

§  First fully transparent fee-onlyassetmanager inFinland,offeringservicefor institutional and private wealth clients, including artists andprofessionalathletes

§  Specialisinginglobalmulti-strategyandvaluedrivenequitystrategies§  Assetmanagementtobeproudof.Foundedin2007,builtandownedby

HCPteam.§  FirmtotalAUM€75.1m(asof31thofDecember2017)

1

26.2

31.8

12.3

4.8

TotalAUM€75,1M

Black Focus Quant ManagedAccounts

0102030405060708090

FirmTotalAUMinM€


HCP Quant Fund Basics

§  FocusingonValueinvestinginsmall-capstocksinboththedevelopedandemergingmarketsusing quantitative tools to aid in selecting companieswith strong financials and low stockmarketvaluations

§  Strategylaunched4thofOctober2010withcurrentAUMof€7.27m(31stofDecember2018)

§  Fundvehiclecharacteristics–  Maximumtwoinvestmentwith20%weight,restwithmaximum10%weight

–  Quarterlyliquidwithaonemonthnotice

–  Bloombergticker:QUANT4UFH,ISINCode:FI4000090451

2


HCP Quant Fund Sources of Alpha

§  Valuedrivenapproachfocusingonthefundamentalsofcompanies–  Returnsfrompricinginefficiencies

–  Buywhensufficientlybelowfairvalueasassessedbyquantmodelsthatshortlistsandordersbuytargets

–  Holdingperiodof6months

§  Mid-smallmarketfocus–  Under-researchedandgreaterrisk/returnprofile(wheresufficientliquidityexists)

§  Quantitativeapproachtofilteringdownandorderingabuylisttargets–  Thealgorithmlooksthrough7,700listedcompaniestofindabuylistof~30stockswithfavorablecharacteristics

–  Dataqualitycrosschecks

–  Discretionarytrading

–  20%Stoplossonthecompanylevel

–  2Xannualportfolioturnover

3

1. 2. 3. 4.Quantmodelsfiltersmall-capuniverseforundervaluedcompanieswithstrongfundamentals.

Quantmodelfurtherfiltersoutcompanieswithpossiblereportingmanipulations.

Modelordersabuylistof30stocks.Tradestoportfolioarediscretionaryandequallyweighted.

Activeriskmanagementwithstoplossandprimaryholdingperiodof6months.


HCP Quant Fund Investment System

4

Whathasworkedinequityinvesting?Successful investment strategies

What causes undervaluation? Influencingfactors

How to improve investment returns? Utilizationofquantitativemethods

”It’s a bumpy road ahead” Nothingisperfect


Small-cap stocks

Smallcompanieshavereturnedacrosstheworldbetterthanthemarket

5

Country Timeperiod Excessreturn(p.a.) Research

Australia 1985-1996 5.9% Liew&Vassalou(2000)

Itävalta 1978-1995 5.8% Hestonetal.(1999)

Belgia 1978-1995 -1.2% Hestonetal.(1999)

Kanada 1960-2001 5.0% L’Heretal.(2003)

Tanska 1978-1995 3.5% Hestonetal.(1999)

Ranska 1978-1995 3.1% Hestonetal.(1999)

Saksa 1978-1995 1.3% Hestonetal.(1999)

Kreikka 1982-1997 0.5% Rouwenhorst(1999)

Irlanti 1977-1986 5.6% Coghlan(1988)

Source: ”International Evidence on the Size Effect” (Savina Rizova, 2006)


Small-cap stocks

6


Italia 1978-1995 -0.2% Hestonetal.(1999)

Japani 1975-1994 4.2% Hawanini&Keim(2000)

Alankomaat 1978-1995 3.5% Hestonetal.(1999)

Uusi-Seelanti 1977-1984 6.1% Gillan(1990)

Norja 1978-1995 5.6% Hestonetal.(1999)

Portugali 1989-1997 -8.9% Rouwenhorst(1999)

Singapore 1975-1985 4.9% Wongetal.(1990)

Espanja 1978-1995 9.0% Hestonetal.(1999)

Ruotsi 1978-1995 4.1% Hestonetal.(1999)

Sveitsi 1978-1995 1.7% Hestonetal.(1999)

UK 1955-2001 1.8% Dimsonetal.(2003)



Small-cap stocks

7


Argentiina 1982-1997 46.1% Rouwenhorst(1999)

Brasilia 1982-1997 15.8% Rouwenhorst(1999)

Chile 1982-1997 3.7% Rouwenhorst(1999)

Kiina 1994-2001 11.1% Drewetal.(2003)

Korea 1982-1997 3.8% Rouwenhorst(1999)

Meksiko 1982-1997 28.7% Rouwenhorst(1999)

Taiwan 1986-1997 8.2% Rouwenhorst(1999)

Intia 1982-1997 -4.2% Rouwenhorst(1999)

Turkki 1989-1997 8.6% Rouwenhorst(1999)



Small-cap stocks

Focusingonsmall-capstockshasworkedwellinboththedevelopedandemergingmarkets

8

Market Timeperiod Excessreturn(p.a.) Research

Europe 1978-1995 3.5% Hestonetal.(1999)

USA 1962-1989 ~8% Famaetal.(1992)

Developedmarkets 1986-1996 11.2% Baumanetal.(1998)

Emergingmarkets 1982-1997 8.2% Rouwenhorst(1999)

Sources: ”International Evidence on the Size Effect” (Savina Rizova, 2006), ”Is Size Dead? A review of the Size Effect in Equity Returns” (Mathijs A. Van Dijk, 2011)


Value investing

§  Valueinvestinghasoutperformedthemarketinthelong-run§  Severaloftheworld’smostsuccessfulinvestorsarevalueinvestors:

WarrenBuffett,JoelGreenblatt,MohnishPabrai,GuySpieretc.§  Valueinvestingreferstoinvestinginundervaluedcompanies§  Valueinvestorvaluescompaniesusingdifferentratios,forexample:

–  P/E(PricetoEarnings,–marketpricepersharedividedbyearningsper

share)–  P/B(PricetoBookvalue,marketpricedividedbybookvalueofequity)–  P/S(PricetoSales,marketpricedividedbysales)–  Dividendyield(dividendsdividedbymarketprice)

–  FCF(FreeCashFlow)

9


Value investing

ValuestocksoutperformedgrowthstocksinEuropeby10%p.a.betweenyears1985-2007

10

Source: ”Value Investing: Tools and Techniques for Intelligent Investment” (James Montier, 2009)


Value investing

Inthedevelopedmarkets,valuestockshavereturned12%p.a.betterthangrowthstocksbetween1985and2007*

11

* In the sample, stocks have been arranged in an order based on their multiples: P/E, P/B, P/CF, P/S and EBIT/EV. A stock’s ranking in each multiple is added together and stocks are put in order based on the total sums. Value stocks are the cheapest 20 % of the stocks based on their summation value and growth stocks are the expensive 20 %. The minimum market capitalization in the sample is 250 million dollars. Returns are calculated in U.S. Dollars.



Value investing

Intheemergingmarkets,valuestockshavereturnedover18%p.a.morethangrowthstocksand11%p.a.morethanthemarketbetween1985and2007*

12

* In the sample, stocks have been arranged in an order based on their multiples: P/E, P/B, P/CF, P/S ja EBIT/EV. A stock’s ranking in each multiple is added together and stocks are put in order based on the total sums. Value stocks are the cheapest 20 % of the stocks based on their summation value and growth stocks are the expensive 20 %. The minimum market capitalization in the sample is 250 million dollars. Returns are calculated in U.S. Dollars.



Value investing

§  Aportfolioconsistingofstocksfromthecheapestfifthindevelopedandemergingmarketsreturnedonaverage18%p.a.*

§  Growthstocksreturnedlessthan3%p.a.*§  Theexcessreturnofvaluestocksovergrowthstocksgloballywas15%

p.a.*

13




Value investing

§  ThefalloftheJapanesestockmarkethasbeenrecordlong§  Between1990and2011theJapanesestockmarketdropped-62.21%§  Valueinvestinggeneratedexcellentreturnseveninthisdifficultmarket

environment§  LowP/Eratiostocksreturned16.9%p.a.between1990and2011§  LowP/Bratiostocksontheotherhandreturned10.6%p.a.

§  Between1975and2011lowP/Eratiostocksreturned23.6%p.a.andlowP/Bratiostocks19.3%p.a.

14

Source: ”Performance of Value Investing Strategies in Japan’s Stock Market” (Hong Kong University of Science and Technology Value Partners Center for Investing, 2013)


Value investing

15

Source: ”Performance of Value Investing Strategies in Japan’s Stock Market” (Hong Kong University of Science and Technology Value Partners Center for Investing, 2013)


Value investing

Regardlessofgoodreturns,riskinvalueinvestinghasbeenlower

16



Value investing

Duringmarketdistress,valuestockshavelostlessoftheirvaluethanthemarketorgrowthstocks

17



Value investing

§  Between1975and2007,valuestocksintheU.S.returned13%p.a.duringarecessionand22%p.a.duringaexpansion

§  Growthstocksreturned5%p.a.duringarecessionand17%p.a.duringaexpansion

§  Valuestocksoutperformedgrowthstocksinbothrecessionandexpansion

18



Small-cap value investing

§  Small-capandvalueinvestinghaveperformedwellinthepast§  Howwouldvalueinvestinginsmall-capstockshaveworkedinthepast?§  IntheU.S.small-capvaluestocksreturned5.28–8.40%p.a.morethan

growthstocksbetween1979and1997

19

Source: ”The Value Premium for Small-Capitalization Stocks” (Manjeet S. Dhatt, Yong H. Kim & Sandip Mukherji, 1999)



§  Therisk(volatility)ofsmall-capvaluestockswaslowerthantheriskofgrowthstocks

§  Theamountofexcessreturnsgeneratedvarieddependingontheratioused(e.g.P/EorP/S)

§  Usingdifferentratiossimultaneouslyimprovedtherisk-adjustedreturnsrelatedtoindividualratios

20



Between1926-2004small-capvaluestocksintheU.S.returned15.9%p.a.whilelarge-capgrowthstocksreturned9.26%p.a.*

21

* The New York Times used as the source of the graph Eugene S. Fama ja Kenneth R. French’s research and allocation of stocks.

Source: ”The Small-Cap Investor: Secrets to Winning Big with Small-Cap Stocks” (Ian Wyatt, 2009)



§  Small-capvaluestockshavereturnedbetterthanlargebluechipstocksuptotoday

§  Russell2000ValueETF,whichbegantradingin2000investsinsmall-capvaluestocksintheU.S.

22

IWN (white) = Russell 2000 Value, SPY (green) = S&P 500. Source: Bloomberg



§  Inthedevelopedcountries,oneofthemostrecentstudyistheresearchdonebyNobelPrizeLaureateEugeneFamaandKennethFrench”Size,Value,andMomentuminInternationalStockReturns”,whichwasreleasedin2012

§  FamaandFrenchstatethefollowing:”Ournewevidencecentersonhowinternationalvalueandmomentum

returnsvarywithfirmsize.ExceptforJapan,valuepremiumsarelargerforsmallstocks.”

§  Accordingtothestudies,investinginsmall-capvaluestockshasworkedglobally

§  Usingseveraldifferentratiossimultaneouslyhasimprovedthechancestogenerateevenhigherreturnswheninvestinginsmall-capvaluestocks

23



24

Source: ”What Works on Wall Street” (James P. O’Shaughnessy, 2005)



§  SimilarresultscanbefoundinEurope.Forexample,belowisatableofreturnsbetween1991and2011,whereP/Bratiowasusedasaprimaryfactoramongotherratios

§  STOXXEurope600returnsinthesameperiodwere0.91%p.a.

25

Source: ”Quantitative Value Investing In Europe: What Works for Achieving Alpha” (Philip Vanstraceele & Tim du Toit, 2012)


Focused portfolio

§  Diversificationlowersportfolio’stotalrisk§  Inanequityportfolio,diversifyingtoapproximately30stocksgives

alreadyaclosetomaximumbenefitfromdiversification

26



Focused portfolio

§  WarrenBuffett:”Diversificationisprotectionagainstignorance.Itmakeslittlesenseifyouknowwhatyouaredoing.”

§  Worldwide,thecheapestfifthofstocksreturned18%p.a.between1985and2007*

§  Thatgroupincludes1800stocks§  Thatkindofdiversificationistoobroadwhenconsideringthebenefits

receivedfromdiversification§  Howwouldaportfolioinvestedinthe30cheapeststocksintheworld

haveperformed?

27



Focused portfolio

Thecheapest30stocksworldwidereturned25%p.a.

28




29






Majority of companies are small-cap companies

Therearealotmoresmall-capstocksthanlarge-capstocks

30

Sources: Montanaro, FactSet. As of 3.1.2012.


Majority of companies are small-cap companies

31

Companies in the U.S. stock market divided into groups based on market capitalization. Apple’s market cap is more than 2.6 times the combined value of all 2021 micro-cap stocks

Source: ”Analyzing the Analysts: A Survey of the State of Wall Street Equity Research 10 Years after the Global Settlement” (Timothy J. Keating, 2013)


Minimal coverage

Eventhoughtherearealotmoresmall-capstocks,feweranalystscoverthem

32

Source: ”The herd vs the reward, or in praise of contratian investing” (Stacy-Marie Ishmael, Financial Times, 4.11.2009)


Minimal coverage

§  TheU.S.Stockmarketisconsideredtobetheworld’smostefficient§  Still,attheendof2012almost29%oflistedcompaniesdidn’thavean

analystcoveringthemorthecoveragewasinadequate*

33

* The tables last column represents how big percentage of the companies doesn’t have analyst coverage at all. For example, 30 % of 74-248 million dollar market cap companies weren’t covered by an analyst.

Source: ”Analyzing the Analysts: A Survey of the State of Wall Street Equity Research 10 Years after the Global Settlement” (Timothy J. Keating, 2013)


Minimal coverage

§  Theanalystcoverageofsmallcompaniesisminimal,whichmakesitpossibleforsmall-capstockstobetradingatadifferentlevelthanthecompanies’truevalues

§  Thismakesiteasierforinvestorstofindmoreundervaluedstocksamongsmall-capvaluestocks

§  Analyzingsmallcompanieswouldrequiremoreresources

§  Analyzingthemisn’tprofitableforanalysts,becausesmall-capstockscannotbeofferedtoasmanyinvestorsaslarge-capstocks

§  Thereforesmall-capstockswillremainlesscoveredinthefuture§  Thisalsoleadstoundervaluedsmall-capstocksreturningmorethanthe

marketinthefuture

34


What color are A and B squares?

35

The copyright holder of this work allows anyone to use it for any purpose including unrestricted redistribution, commercial use, and modification.


Answer: They are both grey

36

The copyright holder of this work allows anyone to use it for any purpose including unrestricted redistribution, commercial use, and modification.


Human decision-making process is flawed

§  Inthepreviousexample,ourbraintellsusthatsquareBiswhite=>theinformationisincorrect,eventhoughourbrainistellingustheopposite

§  Acomputerwouldhaveansweredthequestioncorrectly=>theRGBvaluesofbothofthesquaresarethesame

§  Thehumanabilitytoprocessinformationislimitedanddecision-makingprocessisimperfect

§  Intraditionaleconomicspeopleareassumedtheactrationally§  Inreality,peopleoftenbehaveirrationally

37



§  Anexampleofacoinflippinggame:–  Heads:youwin10euros–  Tails:youlose10euros

§  Wouldyouplaythegame?§  Let’sassumethatyouhavejustwon100euros.Wouldyounowplaythe

game?

§  Whatifyouhadjustlost.Wouldthatchangethegame’sattractiveness?§  Majorityofpeoplearereadytoaltertheirbehaviourbasedonprevious

results§  Thisisdespitethefactthateachround’sexpectedvalueisthesame

§  Completelyrationalpersonwouldactthesamewayeverytime

38



§  Inthepastfewyearsbehavioralfinancehasgainedpopularity§  Behavioralfinancestudiesunsystematicbehaviorininvesting§  Researchfindingsexplainwhyinvestorsdon’tactoptimally

–  Alosshurtstwiceasmuchasanequalsizegain–  Theholdingperiodofaprofitableinvestmentisshorterthanthe

holdingperiodofanunprofitable

–  Anchoringtoapaidpriceofastock–  Investorsareactiveinabullmarket(highrisk)andparalyzedinabear

market(lowrisk)–  Etc.

§  Knowinginvestmentpsychologyisastepforward,butaloneitisnotenoughtochangeinvestorbehaviour=>causesofbehaviourarerooteddeeper

39



§  Thesamereasonsexplainwhyitisdifficultforinvestorstotakeadvantageofprofitableinvestmentpractices

§  Themostprofitableinvestmentsareoften”ugly”and”doomed”companies

§  Itiseasiertoinvestinacompanywithagood”story”behinditasotherinvestorsareexcitedaboutthecompanyaswell

§  Duetoherdbehaviour,itisdifficulttoactagainstthegeneralview=>itiseasiertobewronginagroupratherthanalone

§  Statisticsshowthatthebrightfuturesofmanygrowthcompaniesareshattered=>investorsoverpayforfutureexpectations

40



§  Ontheotherhand,thedistressedtimesof”ugly”companiesdon’tlastaslongasinvestorsexpect=>futureexpectationsareoverlypessimisticandthereforestockpricesaretoolow

§  Theideaofutilizingquantitativeinvestmentmethodsistoeliminatethehumanerrorfromtheinvestmentprocesspreventinggoodreturns

§  Analyzingtensofthousandsofsmall-capcompaniesisalsoimpossibleby

usingatraditionalwayofanalyzingeachcompanyseparately

41



42






Quantitative methods

§  Aninvestorishisownworstenemy=>peopleareprisonersoftheirfeelings

§  Inseveralsituationsasimplecomputermodelworksmorereliablyandmoreaccuratelythanapersonwithasubjectiveview

§  Asanexample;thereisastandardizedtestcalledMMPI-test(MinnesotaMultiphasicPersonalityInventory)toidentifyneuroticismand

psychoticism§  Identifyingthemisimportantbecausetheyaretreateddifferently§  In1968LewisGoldbergwentthrough1,000patients’MMPItestresults

andformedamodelbasedonthedata,whichgaveacorrectdiagnosis70

%ofthetime§  Goldbergthenaskedpsychologiststodiagnosethesamepatients

43



§  Themodelwasclearlymoreaccuratethaneventhebestpsychologist§  Next,Goldberggavethemodeltothepsychologistswhocouldusethe

modeltohelptheirowndiagnoses

44

Source: ”Painting by numbers: an ode to quant” (James Montier, 2006)



§  Byusingthemodel,theaccuracyofdiagnosisincreasedsignificantly§  Still,theaccuracyofthediagnosesdonebypeoplewasworsethanthe

model’s§  Therearesimilarresultsforidentifyingbraininjuriesandprobabilityof

repeatingprobationviolationsetc.

45

Source: ”Painting by numbers: an ode to quant” (James Montier, 2006)



§  Groveetal.wentthrough136differentstudies,whichdealtwithdecision-makingrangingfromheartattackdiagnosistoevaluatingjobcompatibility

§  Onlyineightofthestudiesthequantitativemethodlosttopeople§  Thesimililarityinalleightofthesestudieswasthatthequantitative

methodsdidn’thaveaccesstothesameinformationaspeopledid§  Ineverystudywherethequantitativemethodhadaccesstothesame

informationaspeople,quantitativemethodwasbetter

46

Sources: ”Clinical versus mechanical prediction: a meta-analysis (Grove, Zald, Lebow, Snitz & Nelson, 2000)” and ”Painting by numbers: an ode to quant” (James Montier, 2006)



§  Quantitativemodelsareusefulandwidelyused:–  Airplanepilots’checklistbeforetakeoff–  Weatherforecasts–  Carinsurance–  Etc.

§  Simplyput,aquantitativemethodmeansusingacomputertoanalyzea

largeamountsofdata=>peoples’abilitytoprocesslargeamountsofdataisweak

§  Itispossibletoscreenthemostpotentialstocksoutoftensofthousandsofstocksusingquantitativemethods=>itisimpossibleforapersontogo

throughthesamenumberofstocksonebyonewheneveryquarterthere’snewinformationcomingout

47


Quantitative value investing strategy

§  Quantitativemethodsworkthebestwhenusedtoanalysesmallandmediumsizecompanies,becauseoflackofanalystcoverage

§  Somanyprofessionalsanalyselargecompaniesthatquantitativemethodsdon’tgiveacompetitiveadvantagewhenanalysingthem

§  Quantitativevalueinvestingstrategycombinesvalueinvestingandefficientuseofnumericalinformation

§  Companies’annualandquarterlyreportsarenumericalinformation§  Traditionalratiosusedbyvalueinvestorsarewellsuitedforautomated

dataprocessing(P/E,P/B,dividendyield,etc.)§  Quantitativemethodsenablethecombiningofdifferentvalueinvesting

strategies

48



§  Researchshowsthatthemulti-factormodelsproducebetterrisk-adjustedreturnsthanwhenonlyonefactorisused

§  Usingquantitativemethodscanprotectagainstfraudulentaccountingmethods:–  DechowF-score–  AltmanZ-score

–  BeneishM-score§  ForexampleBeneishM-scoremeasuresacompany’srevenuegrowth,

grossprofit,accountsreceivablesanddebtlevel§  76%ofcompanieswithanM-scorebelow-2.22usedfraudulent

accountingmethods§  Only17.5%ofcompanieswithfraudulentaccountingreceivedanM-score

above-2.2249

Source: ”The Detection of Earnings Manipulation” (Messod D. Beneish, 1999)



§  Quantitativemethodscanbeusedtoefficientlyutilizedifferentvalueinvestingstrategiesbasedonfundamentalinformation:–  F-score(Piotroski)–  MagicFormula(Greenblatt)–  ERP5(Vanstraceele&Allaeys)–  NetCurrentAssetValue(BenjaminGraham)

–  TinyTitans(O’Shaughnessy)–  ValueCompositeOne(O’Shaughnessy)

§  Forexample,PiotroskiF-scoremeasuresacompany’sprofitability,leverageandoperationefficiencybyutilizingninedifferentfactors(e.g.

ROA,OCF,profitmargin,long-termdebtdevelopment)

50



51






Nothing works all the time

§  Onemustkeepinmindthateventhoughagoodinvestmentstrategyworksmostofthetime,itdoesn’tmeanitwillworkallthetime

§  Eventhebestinvestmentmethodsencounterperiodsoflowerreturns,sometimescontinuingformanyyears

§  Thefactthataninvestmentstrategydoesn’talwaysworkmakesitpossiblethatitwillworkinthefuture

–  Allinvestorswouldusethesamestrategyifonestrategywouldalwaysworkwithoutarisk

–  Duringperiodsofpoorreturns,someinvestorsabandonthestrategy§  Oftenthisoccursrightbeforethestrategystartsproducingexcessreturnsagain

52



70%ofportfoliomanagerswhohavegeneratedexcessreturnsofover3%p.a.haveunderperformedthemarketsforthreeyearsorlonger*

53

* Figure 14.6 uses a constructed universe where all the fund managers have 3 % alpha and 6 % tracking error. I then let the make-believe managers run money for 50 years. The chart illustrates the frequency of years of back-to-back underperformance. Around 70 % of the make-believe fund managers displayed 3 or more years of underperformance! –James Montier




GoyalandWahalstudiedin2005thehiringandfiringoffourthousandportfoliomanagersmanagingfundsforpensionfundsintheU.S.between1993and2003*

54

* More accurate information can be found in ”The Selection and Termination of Investment Management Firms by Plan Sponsors” (Amit Goyal & Sunil Waha, 2005)




§  Apensionfundtraditionallyhiredaportfoliomanagerwith14%excessreturnsinthelastthreeyears

§  Portfoliomanagerswhogotfiredduetopoorperformancegenerated5%excessreturnsinthreeyearsafterbeingfired

§  Thisindicateswellhowpainfulperiodsofunderperformanceare§  Aperiodofunderperformancehashistoricallyalwaysbeenfollowedby

outperformance,whichcompensatesforthepreviouspoorerreturns§  EvenHCPQuantfundcanbeexpectedtohaveperiodsof

underperformanceforseveralyears

55



§  ThebestperformingfundofthedecadeintheU.S.attheendof2009wasCGMFocusFund

§  Thefundreturnedonaverage18.2%p.a.overthedecade§  Atypicalfundinvestorlost-11%p.a.§  Thisisbecauseinvestorsinvestedinthefundafteragoodperiodandtook

theirmoneyoutduringapoorperiod

§  Timingisextremelydifficult,ifnotimpossible§  Accordingtodifferentstudies,investorswhotrytotimethemarkets

performworsethanothers§  Eventhebestfunddoesn’thelptheinvestor,iftheinvestorcannot

toleratepricefluctuations

56

Source: ”Best Stock Fund of the Decade: CGM Focus” (Eleanor Laise, The Wall Street Journal, 31.12.2009)


Individual investor’s tax shield

§  HCPQuantfund’sinvestmentstrategy’sstockturnoverratioishigh§  Atypicalstockisheldintheportfoliofromsixmonthstoayear§  AnindividualinvestorpayingtaxesinFinlandhasacapitalgainstaxof

30/34%§  Thefundsreturnsaretax-free§  Inafund-basedinvestmentstrategycompoundingeffectisemphasized

becausetheinvestorpaystaxesonlywhenwithdrawingmoney§  Thesameinvestmentstrategyismoreprofitableforalongtermindividual

investorasafundthanifinvestedindividually

57


Summary of HCP Quant

§  Anon-UCITSfundinvestinginsmall-andmid-capstocks§  Investsinglobaldevelopedandemergingmarketstocks(Europe,USA,

Asia,Australia)§  Utilizesquantitativeinvestmentmethodsininvesting,withagoaltoavoid

humanlimitations§  Focusesinvestmentsinafewdozenstocksanalyzedtobethebestofclass

§  Doesn’tusethetypicalmarketweightedportfolioweighting§  Isbuiltonastrongscientificresearch;usesprovensuccessfulinvestment

strategies,whichcanbeassumedtoperformwellinthelongrun

58


Independent Risk Management

§  Investmentrisk–  Portfoliomanagercontrolsriskinlinewithportfoliostrategy–  HCPInvestmentcommitteewithtwopersonsindependentfromtheportfolio

managercontrollsriskwithself-standingmethodology§  Maximumtwoinvestmentwith20%weight,restwithmaximum10%weight§  Liquiditymanagementforquarterlyliquiditywithaonemonthnotice

§  Monitoringofcounterpartyrisk

§  Monitoringofvolatilityondifferenttimescales

§  Internaloperationalrisk–  IndependentPrimeBroker(SEB,InteractiveBrokers)–  Auditor given real time access to auditable transaction and portfolio data.

RegularchecksintoNAV,ataminimumeverytwomonths(EY).Annualaudit.–  Custodiangivenreal timeaccess toauditable transactionandportfoliodata.

RegularchecksintoNAV,ataminimumoneoverallauditannually(SEB)

59


The Fund Management Team

PasiHavia–PortfolioManagerofQuantFund§  PasijoinedHelsinkiCapitalPartnersin2013wherehemanagesthequantitativestrategy

fund,HCPQuant.PreviouslyheholdseniorsoftwareengineeringrolesincompaniessuchasNokia,MyOrigoandInvestmentIntelligenceandstartedinvestingthroughself-builtquantitativeinvestmentmodelsin2010.

§  PasihasalsopublishedabookaboutpersonalwealthmanagementandwrotewidelyreadinvestmentbloginFinland.HestudiedInformationProcessingScienceandFinanceattheUniversityofOulu,Finland.

§  Hehas15yearsofinvestmentexperience.§  “IhadworkedoveradecadewithsoftwaredevelopmentbeforeIbecamepartoftheHCP

team.Joiningboththesoftwareandinvestingindustryhappenedbecauseofagenuineanddeepinterestinthesubjects.IfoundmywaytoHCPwhenIrealisedhowmyandthecompany’svaluesarealigned.IrespectHCP’swaytooperateopenlyandhonestly;thingsaresaidastheytrulyare.Iwanttobepartofbuildinganassetmanagementcompanythatputsthecustomers’needsfirst”.

[email protected]

Kaapelitehdas,Tallberginkatu1D5thfloor,00180Helsinki,FinlandTel+358968988481Fax+358968988475www.hcp.fi

60


Service Providers

§  Legalstructure AlternativeInvestmentFund(AIF)§  Domicile Finland§  FundManager HelsinkiCapitalPartnersFundManagementCompanyLtd§  Custodian SkandinaviskaEnskildaBanken(SEB),Finland§  Auditor Ernst&Young,Finland(EY)§  LegalAdvisor EY,Finland§  FundAdministrator RealTimeAccessbyEYandSEBintoauditabletransactionand

portfoliodataofHCPFundadministration.Regular,atminimum bi-monthly,checksintoNAVbyEY.Annualaudit(SEBandEY).

61


“Value investing is at its core the marriage of a contrarian streak and a calculator.”

Seth Klarman

62

HELSINKI CAPITAL PARTNERS€¦ · § The excess return of value stocks over growth stocks globally...

Documents

Transcript of HELSINKI CAPITAL PARTNERS€¦ · § The excess return of value stocks over growth stocks globally...