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Interview with: Luc Dumontier,
Head of Factor Investing & Senior
Portfolio Manager, La Française
Investment Solutions
Investors should select only robust
premia that they understand and that
can offer true diversification, says Luc
Dumontier, Head of Factor Investing &
Senior Portfolio Manager at La
Française Investment Solutions.
Factor timing has proved to be difficult
historically, according to Dumontier, so
he proposes using allocation techniques
that result in highly diversified
portfolios.
La Française Investment Solutions is an
asset manager at the marcus evans
European Pensions & Investments
Summit 2016, in Montreux, Switzer-
land, 23 - 25 May.
Why is the “factor investing”
approach interesting?
Firstly, investors have realised that
most funds tend to be exposed at best,
in benign conditions, to very few risk
factors; and at worst, in times of risk
aversion, solely to equity risk and thus
correlated to market fluctuations. This
explains the emergence of risk parity
solutions from 2008 that force the
diversification to be effective between
two historically uncorrelated factors,
being equities and government bonds.
However, a risk parity allocation, which
corresponds to a capital allocation of 15
percent to equities and 85 percent to
bonds, is ever less appealing given the
low level of yields.
Secondly, investors also realised that
most funds that succeed to beat their
benchmark were biased to other factors
such as buying the cheapest stocks
based on their valuation multiples
(value) and the smallest in terms of
capitalisation (size) for equity portfolios.
It was enough to convince investors to
directly expose their portfolios to such
factors.
Can you tell us more about these
factors? Why do they bring premia?
Why is it interesting to combine
them?
The classical premia approach combines
different long/short portfolios which
capture the standard alternative factors
(value, carry, momentum, low risk) well
documented by academics. The factors
are implemented across a broad
allocation of traditional asset classes
(stocks, bonds, currencies and
commodities).
These factors are expected to deliver
returns linked either to additional
structural risk (risk premia) or by
putting in place strategies that profit
from biases linked to market partici-
pants’ behaviour, investment con-
straints and structural flows (style
premia).
The rationale behind each of these
premia being different is that they are
supposed to deliver returns that are less
correlated with each other and
underlying asset class, and so can serve
as blocks to build portfolios expected to
deliver strong Sharpe ratios.
Did these investment solutions
manage to stand out in terms of
return and diversification?
According to numerous simulations done
by both academics and investment
banks, these solutions would have
allowed investors to achieve regular
returns and mildly correlated with asset
classes over the past two decades.
However, since the launch of the first
“style premia” solutions in 2013, the
reality has been a long way from this
fiction: they have delivered modest
average returns and often correlated
with the equity markets.
What do you recommend to achieve
stable returns using such a frame-
work?
Firstly, we urge investors to only select
robust premia, being those that are
understandable, really diversifying and
built avoiding over-fitting. Secondly, it is
crucial to capture other types of premia
than the academic ones that are
implemented by evermore investors.
This diversification can be done using
other investment horizons (e.g. medium-
frequency strategy that exploit short-
term over-reactions) or other asset
classes (e.g. volatility, insurance-linked
securities and arbitrage strategies).
Thirdly, we recommend avoiding factor
timing that have proved to be difficult
historically. We would rather encourage
everyone to use allocation techniques
that result in highly diversified portfolios
among factors (e.g. equally risk
contributed) to make the most from
their diversification power.
It is crucial to
capture other types
of premia than the
academic ones that
are implemented by
evermore investors
Truly Diversifying an
Investment Portfolio
The Investment Network –
marcus evans Summits group
delivers peer-to-peer information
on strategic matters, professional
t r e n d s a n d b r e a k t h r o u g h
innovations.
Please note that the Summit is a
closed business event and the
number of participants strictly
limited.
About the European Pensions & Investments Summit 2016
The 16th annual European Pensions & Investments Summit is the ultimate meeting
point, bringing elite buyers and sellers together. The Summit offers regional pension
investors and international fund managers and consultants an intimate environment
for focused discussion of the key new drivers shaping institutional asset allocations.
Taking place at the Fairmont Le Montreux Palace, Montreux, Switzerland, 23 - 25
May 2016, the Summit includes presentations on asset allocation, capturing
alternative investment opportunities, portfolio optimisation and pension plan
modernisation.
www.epi-summit.com
Contact
Sarin Kouyoumdjian-Gurunlian, Press Manager, marcus evans, Summits Division
Tel: + 357 22 849 313
Email: press@marcusevanscy.com
For more information please send an email to press@marcusevanscy.com
All rights reserved. The above content may be republished or reproduced. Kindly
inform us by sending an email to press@marcusevanscy.com
About La Française Global Investment Solutions
La Française Investment Solutions (“LFIS”) is an institutional asset management boutique established in 2013 and based in Paris,
France. Together with La Française Bank, Paris branch, LFIS makes up La Française Global Investment Solutions (“LF GIS”), the
investment solutions business line of French asset manager La Française Group. LF GIS offers a range of investment solutions
including hedge funds and dedicated solutions and has seen strong growth since inception with assets currently at $4.9 billion and
more than 38 professionals.
www.lafrancaise-gis.com/en
About marcus evans Summits
marcus evans Summits are high level business forums for the world’s leading decision-makers to meet, learn and discuss
strategies and solutions. Held at exclusive locations around the world, these events provide attendees with a unique opportunity to
individually tailor their schedules of keynote presentations, case studies, roundtables and one-to-one business meetings.
For more information, please visit: www.marcusevans.com
Upcoming Events
Elite Summit - www.elitesummit.com
Private Wealth Management Summit (North America) - www.privatewealthsummit.com
To view the web version of this interview, please click here: www.epi-summit.com/LucDumontier

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Truly diversifying an investment portfolio - Luc Dumontier news release

  • 1. Interview with: Luc Dumontier, Head of Factor Investing & Senior Portfolio Manager, La Française Investment Solutions Investors should select only robust premia that they understand and that can offer true diversification, says Luc Dumontier, Head of Factor Investing & Senior Portfolio Manager at La Française Investment Solutions. Factor timing has proved to be difficult historically, according to Dumontier, so he proposes using allocation techniques that result in highly diversified portfolios. La Française Investment Solutions is an asset manager at the marcus evans European Pensions & Investments Summit 2016, in Montreux, Switzer- land, 23 - 25 May. Why is the “factor investing” approach interesting? Firstly, investors have realised that most funds tend to be exposed at best, in benign conditions, to very few risk factors; and at worst, in times of risk aversion, solely to equity risk and thus correlated to market fluctuations. This explains the emergence of risk parity solutions from 2008 that force the diversification to be effective between two historically uncorrelated factors, being equities and government bonds. However, a risk parity allocation, which corresponds to a capital allocation of 15 percent to equities and 85 percent to bonds, is ever less appealing given the low level of yields. Secondly, investors also realised that most funds that succeed to beat their benchmark were biased to other factors such as buying the cheapest stocks based on their valuation multiples (value) and the smallest in terms of capitalisation (size) for equity portfolios. It was enough to convince investors to directly expose their portfolios to such factors. Can you tell us more about these factors? Why do they bring premia? Why is it interesting to combine them? The classical premia approach combines different long/short portfolios which capture the standard alternative factors (value, carry, momentum, low risk) well documented by academics. The factors are implemented across a broad allocation of traditional asset classes (stocks, bonds, currencies and commodities). These factors are expected to deliver returns linked either to additional structural risk (risk premia) or by putting in place strategies that profit from biases linked to market partici- pants’ behaviour, investment con- straints and structural flows (style premia). The rationale behind each of these premia being different is that they are supposed to deliver returns that are less correlated with each other and underlying asset class, and so can serve as blocks to build portfolios expected to deliver strong Sharpe ratios. Did these investment solutions manage to stand out in terms of return and diversification? According to numerous simulations done by both academics and investment banks, these solutions would have allowed investors to achieve regular returns and mildly correlated with asset classes over the past two decades. However, since the launch of the first “style premia” solutions in 2013, the reality has been a long way from this fiction: they have delivered modest average returns and often correlated with the equity markets. What do you recommend to achieve stable returns using such a frame- work? Firstly, we urge investors to only select robust premia, being those that are understandable, really diversifying and built avoiding over-fitting. Secondly, it is crucial to capture other types of premia than the academic ones that are implemented by evermore investors. This diversification can be done using other investment horizons (e.g. medium- frequency strategy that exploit short- term over-reactions) or other asset classes (e.g. volatility, insurance-linked securities and arbitrage strategies). Thirdly, we recommend avoiding factor timing that have proved to be difficult historically. We would rather encourage everyone to use allocation techniques that result in highly diversified portfolios among factors (e.g. equally risk contributed) to make the most from their diversification power. It is crucial to capture other types of premia than the academic ones that are implemented by evermore investors Truly Diversifying an Investment Portfolio
  • 2. The Investment Network – marcus evans Summits group delivers peer-to-peer information on strategic matters, professional t r e n d s a n d b r e a k t h r o u g h innovations. Please note that the Summit is a closed business event and the number of participants strictly limited. About the European Pensions & Investments Summit 2016 The 16th annual European Pensions & Investments Summit is the ultimate meeting point, bringing elite buyers and sellers together. The Summit offers regional pension investors and international fund managers and consultants an intimate environment for focused discussion of the key new drivers shaping institutional asset allocations. Taking place at the Fairmont Le Montreux Palace, Montreux, Switzerland, 23 - 25 May 2016, the Summit includes presentations on asset allocation, capturing alternative investment opportunities, portfolio optimisation and pension plan modernisation. www.epi-summit.com Contact Sarin Kouyoumdjian-Gurunlian, Press Manager, marcus evans, Summits Division Tel: + 357 22 849 313 Email: press@marcusevanscy.com For more information please send an email to press@marcusevanscy.com All rights reserved. The above content may be republished or reproduced. Kindly inform us by sending an email to press@marcusevanscy.com About La Française Global Investment Solutions La Française Investment Solutions (“LFIS”) is an institutional asset management boutique established in 2013 and based in Paris, France. Together with La Française Bank, Paris branch, LFIS makes up La Française Global Investment Solutions (“LF GIS”), the investment solutions business line of French asset manager La Française Group. LF GIS offers a range of investment solutions including hedge funds and dedicated solutions and has seen strong growth since inception with assets currently at $4.9 billion and more than 38 professionals. www.lafrancaise-gis.com/en About marcus evans Summits marcus evans Summits are high level business forums for the world’s leading decision-makers to meet, learn and discuss strategies and solutions. Held at exclusive locations around the world, these events provide attendees with a unique opportunity to individually tailor their schedules of keynote presentations, case studies, roundtables and one-to-one business meetings. For more information, please visit: www.marcusevans.com Upcoming Events Elite Summit - www.elitesummit.com Private Wealth Management Summit (North America) - www.privatewealthsummit.com To view the web version of this interview, please click here: www.epi-summit.com/LucDumontier