"That's why I'm really a big fan of funds"
What is the secret of the investment success of the LLB Group? We checked with someone who has to know: Markus Wiedemann (56) is Chief Investment Officer at the LLB Group and has worked in the investment field at the Liechtensteinische Landesbank (LLB) for 28 years. He knows what a good investment specialist must bring to the table, and he is aware that clients often only want "quick" investment tips that will not be successful in the long term. For a long time now, he himself has invested only in funds – much to the delight of his wife.
Successful Asset Management of the LLB Group: 12 Lipper Awards 2019, already 44 awards since 2012
What sets us apart is the strong motivation of each and every individual in the team.
What is the secret of the success of the LLB Group's Asset Management, given that it regularly achieves above-average returns compared with its competitors?
It's difficult to point specifically to what the secret is. What we can say: We have fewer people and fewer resources than others. This forces us to focus on what's essential – the strategy. That's what we do.
But aren't many clients more interested in specific securities than in a strategy?
Yes, many clients prefer to talk about individual securities, and they would like buy recommendations. But as I said, what is crucial in investing is the strategy. Investments in individual securities don't generate the decisive outperformance in the long run. Many different studies have shown this. The bottom line is that the selection of securities makes up only 4% of overall performance. This is roughly as important as, for instance, deciding whether to overweight or underweight equities in the short term. What's essential is the strategy: In the long term, it affects more than 90% of the performance of an investment. This is why we very specifically focus on an optimised strategy and spend most of our time and resources on it.
How do you compensate for the fewer resources compared to your competitors?
We rely on modern technologies, specific IT solutions, and sophisticated models. For equities and other investments, we use internally developed quantitative models, including a multi-factor model for equities. With this model, we evaluate equities according to several very specific criteria that lead us to expect above-average returns. The calculation on the basis of these factors is completely automatic.
Can you be a bit more specific?
Imagine a decathlon. An "equity" enters the competition and scores points in the various disciplines. For example, one discipline is "cheap valuation", another is "strong capitalisation", yet another is "growing" or has "momentum", such as when the share price is increasing. Within seconds, our models rank up to 5'000 equities according to the total number of points, from the equity with the highest expectation of success to the one that promises the least success.
What do you do with this computer-generated ranking?
We examine which of the promising shares we do not yet have in our fund. These are then carefully analysed in terms of fundamentals, and then we decide whether to buy them or not. We also examine which of the less promising equities we already have in our funds. These are then also carefully analysed in terms of fundamentals, after which we decide whether to sell them or keep them. In addition to the success factors already mentioned – the focus on the strategy, and the use of cutting-edge technology combined with a proprietary valuation model – our investment specialists are clearly decisive for our success.
What is special about the Asset Management team of the LLB Group?
According to the McKinsey Asset Management Survey (2018), the average size of an asset management team is about 400, while an average small team has about 65. With about 55 people, we are a very small team. What sets us apart is the strong motivation of each and every individual in the team. Everyone wants to do their job well. I am convinced that our investment approach and team performance are the reasons why our products regularly perform so well – not always all of them, but more often and often better than other competitors.
This year, the Liechtensteinische Landesbank received the Refinitiv Lipper Group Award Europe for the best range of funds in its category in Europe. What does this award mean to you?
This is our most outstanding achievement so far and makes us really proud. This year, we were also the best in Germany in the same Overall Small Company category, and last year already in Switzerland. Clearly, we can't deny there's a pattern. [laughs]
What are the criteria for a fund provider to be included in the rating?
For the analysis in the Overall Small Company category, the renowned rating agency Refinitiv Lipper looks at where a company's funds are registered for sale and includes them in the rating for those countries. Our funds are registered for sale in Liechtenstein, Switzerland, Germany, Austria, and partially also in the United Kingdom.
What specifically does "overall" mean in the rating?
"Overall" means that all funds registered for sale in a given country are evaluated, for instance in Switzerland. Risk-adjusted performance is then determined for each fund over three years, and the fund is ranked in the respective category. The fund with the best rank then receives the Refinitiv Lipper Fund Award for that category.
To receive a rating as a fund provider in the Overall ranking, the provider must offer three funds in each main investment class, namely bond, equity, and strategy funds. The provider with the best result across all funds ¬– evaluated on a risk-adjusted basis for each individual fund – is deemed to have the best range of funds and receives the Refinitiv Lipper Group Award in the Overall category.
And what does the award mean for you as the Chief Investment Officer?
It confirms to us once again that we have very solid investment expertise overall. There is no question that our competitors perform strongly as well, but we are proud to say that none of our direct competitors in the region has received a Refinitiv Lipper Group Award for their entire range of funds in the past five years. And companies have no choice in whether their funds are rated or not. They are evaluated if they meet the criteria we already talked about. I would also like to emphasise that not only our direct competitors are examined, but also all providers who have a sufficient number of funds registered for sale in the countries in question. This means we've prevailed against international competitors – something we can't overestimate, and so I'm really very proud about the award.
Refinitiv Lipper's rating assesses risk-adjusted performance over specified time periods. What is the current return on a fund with medium equity exposure?
Looking at equities, Swiss equities for example have generated returns of 7.6% on average per year since 1925, despite the depression in the 1930s, the 2001 crash with a drop of 50%, and the slump in 2008 with a similar drop of 50%. Even including all these losses, the average yearly return was 7.6%. There is little reason to believe that funds like this will generate substantially lower returns over the long run in future.
Who should invest in funds, and whom do you advise to buy individual securities?
Anyone who, for instance, wants to invest less than 100,000 Swiss francs in Swiss equities, Swiss franc bonds, or European or North American equities should choose a fund solution. If someone wants to invest more, they may also want to choose individual investments.
But fund investments cost extra…
That's true, funds cost something when you buy them and when you sell them, just as individual securities do. And funds also incur a management fee. But despite these additional costs, funds have several advantages that outweigh them.
What are the advantages of a fund investment?
As discussed, we actively manage our funds. This means that someone is there to recognise when investment opportunities arise and when better returns can be achieved. The implementation of such a reallocation incurs hardly any costs and no taxes for the fund. In the case of a portfolio consisting of individual securities, higher fees are incurred for optimisations of returns. These costs are borne by the investor in the individual securities. For many investors, a fund is the simpler form of investment and a suitable alternative. That's why I'm really a big fan of funds. I am convinced that investors with smaller sums are better off choosing funds and that investors with large assets can also achieve very good results with funds.
Don't you personally invest in individual securities?
I have been at the LLB for 28 years. For some time, I was responsible for North American equities and did hardly anything but analyse American equities. I still invested in individual securities then. That wasn't a bad thing, but over the long term the returns weren't any better than those of "my" fund, LLB Equities North America. And from time to time, something happened that had an impact on the performance of the individual securities. Volatility was accordingly high, which can be very nerve-wracking. At some point, my wife said, "Can't you just buy your fund? I'd much prefer that." No sooner said than done. I've only invested in funds since. [laughs]
What are the hallmarks of a good investment specialist?
For me, a good investment specialist is someone who is deeply interested in economics, as a rule has a business degree, shows a high level of dedication, and enjoys competition. The performance of investment specialists is measured – not only by Refinitiv Lipper, but also by us internally. If an investment specialist performs poorly, this is apparent to everyone and has a negative impact on remuneration as well. Of course, the opposite is also true. Performance is measured against a global fund universe every month. An investment specialist has to be able to withstand this competitive pressure.
Where do you see new investment opportunities and trends in the future – also under the aspect of sustainability?
It is certainly the case that sustainable investing will have to be taken into account even more in the future – due to the increased awareness of the younger generation and future regulatory requirements. The LLB offers sustainable investments in both investment advisory and asset management mandates. Over the next three years, we will certainly be massively expanding our range of products in this regard.
After the recent success at the Refinitiv Lipper Group Awards Europe: What else can the Asset Management of the LLB Group win, and what do you wish for?
There's really not that much more we can achieve in terms of awards. This is the highest recognition in funds. The past two years have been extremely good years for the LLB Group's Asset Management with a large number of awards. Numerous investment solutions of the LLB Group have been recognised, as well as investment solutions offered by our colleagues in Vienna. As a representative of the "production side", I wish for regular successes in distributing our products – our funds – and that ultimately clients are able to benefit from them.
Thank you very much for the conversation.
About Markus Wiedemann
Markus Wiedemann, Managing Director, Asset Allocation
Since 2002 LLB Asset Management AG
- 2000 – 2002 Head of Asset Management Division, LLB
- 1997 – 2000 Research and Fund Management, LLB
- 1990 – 1997 Asset Management and Analysis, LLB
Education: Mag. rer. soc. oec., Economics, University of Innsbruck
Hobbies: Family, gardening, cycling