Why This Fund's Robot Hates Facebook, Amazon and GoogleBy
Larger growth stocks aren’t winners over time, Bringedal says
Sees value, size and momentum contributing to excess return
The surge of tech giants Facebook and Google isn’t captured by the algorithms used by the model-based equity team at Norwegian insurer Storebrand ASA.
But that doesn’t matter. The Global Multifaktor fund avoids large-sized growth stocks because they aren’t winners over time, according to Baard Bringedal, who oversees about 160 billion kroner ($19 billion) of stocks at the Oslo-based company.
“The perfect storm for our portfolio is big growth companies that outperform,” the 38-year-old chief investment officer equities at Storebrand Asset Management, said in an interview on Friday. “Nowadays, there are some big growth companies that make trouble. We don’t like expensive growth companies -- Facebook, LinkedIn, Amazon and Google.”
The $1.1 billion multi-factor fund, which holds 250 to 300 companies, seeks to outperform by buying stocks that are ranked highest based on their small size, value, high momentum or low volatility. It excludes those that belong to the worst 10 percent in any of the factors and attempts to limit risk by making small investments.
“We wish to toss the coin many times and hope that our model is so good that a majority end up on the right side,” he said. “We don’t use cash to have a market view.”
Bringedal heads up Storebrand’s model-based equities team of Andreas Poole, Lars Q. Soerensen and Henrik W. Nilsen, who joined in 2010 with a doctorate in experimental particle physics from the University of Freiburg and has done research at the CERN laboratory in Geneva.
The narrow focus allows the fund to analyze thousands of companies in a “couple of minutes,” he said.
“We are 100 percent model,” Bringedal said. “There’s no tactical view. We just let it roll.”
That has paid off for the fund with an average annual return for the past three years of 20 percent, ranking it 27th of 3,868 foreign-blend equity funds, according to data compiled by Bloomberg.
Bringedal doesn’t act on any macroeconomic view but he isn’t worried about the prospect of interest rates rising again.
“If rates start to rise, the economy is doing fine and in isolation that’s good,” he said. While that could hurt low volatility stocks as investors “start to pull their money back to attractive rates. It can contribute to that factor performing worse. But for other strategies, such as value, I don’t think it’s negative.”