Manuel de Bonneval, Fund Manager NExT AM FUND, Tendance Finance

Manuel de Bonneval (HEC Paris, Sciences Po Paris, PhD in History) is in charge of Management, Research and Development Strategy. At Man Fidex, he had his strategy implemented in various portfolios representing up to US$950 million; he was also in charge of elaborating new strategies for the group.

LUXHEDGE :  Tendance Finance is part of La Française. Could you brief us on the link between those companies?

MANUEL de BONNEVAL: I created Tendance Finance* in October 2011 alongside with Next AM (part of La Française Group). La Française, a major French asset manager under the umbrella of credit mutual du Nord, was created 40 years ago. It employs 480 professionals in its offices in Paris, Frankfort, Hong Kong, London, Luxembourg, Madrid and Milan and has more than €42B AUM with a major exposure to property.

Tendance Finance is a French independent investment advisor which developed a proprietary fully systematic allocation process. This process is implemented under a UCITS IV format, managed by La Française, and Tendance Finance is the exclusive advisor of the fund.

I have 75% of Tendance Finance’s capital. Next AM/New Alpha, the French seeding arm of La Française Group, has a 15% stake in the company. The remaining 10% belongs to employees.

LH: Could you introduce NExT AM FUND – Tendance Finance and describe its main characteristics?

MdB: NExT AM Fund – Tendance Finance is an Alternative UCITS fund classified in the CTA/Managed Futures category. It was launched on 23 May 2012 and seeded with €5M. It now has €61 million of Assets under Management. The fund is actively managed and aims to deliver absolute returns whatever the financial markets conditions. We call it an “all weather” fund.

Unlike most of the CTA/Managed Futures funds that are trend followers, we consider ourselves as Trend Pickers. The model we use captures major trends of each asset class (government bonds, equities, FX and commodity).

One of our main characteristics is that we use very common tools, but in an uncommon way: we could say we act like a technical global macro; we focus on the trends at the global macro level (asset classes) and then we select within each asset class the best trends. Our trend picking ability derives from a ranking system, related to momentum which allows us to optimise the allocation by being on the best ranked pocket.

Our historical performance reflects this strategy: in 2013 two thirds of our profits came from equity exposure, while in 2014 bonds contributed for 99% of the overall return.

In January, the best month recorded so far with +8%, the performance also came from the bond exposure, which is another evidence of our real convictions and selectivity.

Another important aspect of the fund is that our philosophy contests some mantras:

  • Diversification is a not necessarily a must. When markets are in crisis, we can clearly see that all asset classes are correlated.
  • No market timing! Even if the process detects all the trends, we don’t always follow those trends. When we lack conviction, we do not hesitate to use a cash pocket in our portfolio.
  • Last difference may be: We noticed that we perform within a different time window compared to others; in 2014 the main part of the performance was achieved between January and August whereas the others trend followers started to perform after September 2014.

LH: NExT AM Fund – Tendance Finance is one of the very best CTA/Managed Futures fund in our database. Could you comment on your performance?

MdB: Thank you for this compliment! With a return of 25.25% in 2014, we indeed experienced a fantastic year. We are proud to be this year among the best funds in this category.

NExT AM Fund – Tendance Finance has performed nicely with 45.16% since inception in May 2012, beating the LuxHedge CTA/Managed Futures UCITS Index which only exhibited a 8.39% return over the same period. CTA/Managed Futures was the best strategy in 2014 with a return equal to +6.78% for the LuxHedge CTA/Managed Futures UCITS Index. There is no reason to believe that this is coming to an end and hence, we remain very confident for this trend will continue into 2015.

January has been very good with an increase of 8.30% with a quite stable volatility around 9%.

We are in line with our simulation and back-tests, so we are quite confident that we will keep delivering performance to our investors as long as markets offer trends.

To illustrate the way the fund is managed, let’s consider the summer of 2014, and especially the month of July when the equity market was in the midst of a downward correction. During this period, we reduced our exposure to equities very quickly in order to limit the impact on the fund’s NAV. We also took the decision to increase our exposure in developed countries in Asia and reduced our investments in North America.

LH: How do you advise NExT AM Fund – Tendance Finance?

MdB: Our process combines a trend picking focus, a top/down approach and a market ranking process. We begin with the identification of the major trends (long, short or neutral) for each asset class. Then, we determine the best-ranked markets within each asset class before constructing our portfolio and investing in financial instruments. Best ranked means offering the best momentum as we never have targets, we are purely objective.

There are three different phases in our trading phase:

  1. Early trade: we assign the maximum exposure when the signal comes in, meaning that there is the largest market exposure at trend inception.
  2. Cruising phase: we start to reduce exposure as soon as our profit target is hit.
  3. Terminating phase: if the momentum fades, we also limit the exposure.

LH: Do you follow any specific philosophy while advising NExT AM Fund – Tendance Finance?

MdB: Well, one key aspect of our philosophy is to systematically look at markets globally: equity, bond, forex, commodity. We also use liquid exchange cleared futures and forex contracts to establish our positions.

Despite our systematic strategic approach, we want our investment decisions to make sense to our investors and to be simple to understand. We see it as a white box as opposed to some systematic models which can sometimes be difficult to apprehend due to their opacity. Transparency is an essential aspect of our fund: the strategy is very down-to-earth, based on the reading of straightforward technical indicators. We monitor positions and our risk reports are available on a daily basis. Everything is done with one goal: providing our clients with a clear view on our portfolio construction, and bring performance and comfort.

LH: How would you define your risk management process?

MdB: Apart from a classic stop loss policy, we identify three different layers, each with its own importance.

  • Individual market layer: the size of a position will depend on the phase, the market volatility. Also, a limit exposure is set.
  • Asset class layer: exposure is reduced when fading momentum triggers. Moreover, we pre-fixed stop-losses at position entry; and once again, a limit exposure is set.
  • Portfolio layer: portfolio volatility levels cause global exposure reductions.

To sum up, we want to limit our risk exposure as much as possible with a tight monitoring.

We really want to preserve performance, which is why we also have a stop gain policy and reduction signals to cut exposure as soon as the technical situation deteriorates.

LH: What analytical conclusions have you drawn from your allocations in 2014?

MdB: 2014 was interesting because we made very few changes within the portfolio. We stayed on the same selection for bonds all year long and our equity selection was also quite stable. We do not trade if unnecessary.

We had no scenario and this has proved the best solution! If you remember, many strategists were expecting 2014 to be the year for equities after such a nice rally on bonds. For us, as agnostics, we just suggested that the flows were still going into bonds and that in term of ranking, governments bonds were the place to be, not the equities.

Our relatively moderate equity pocket was focused most of the time on the North American market. We were extremely quick to react while managing our equity exposure, with a frequent nil or short exposure, most notably since September. We kept our investment in this asset class limited around year end.

Our approach is well suited for these markets which defy rationality.

LH: Thank you very much.

*DISCLAIMER: Tendance Finance act as an exclusive investment advisor of the fund NExT AM – Tendance Finance.