Investment Strategy
Unique Portfolio Characteristics Deliver Superior Performance
The higher outperformance probability comes from systematically investing in companies with high scores in the following 5 dimensions:
Growth – is the company successfully expanding its business?
Profitability – does the company operate efficiently?
Financial Health – is the company in good financial condition?
Valuation – is the market price of the company attractive?
Sustainability – does the company excel in terms of ESG scores?
Our proprietary research on relevant fundamental selection criteria is the foundation of our fundamental model. We published the key results in the Wilmott Magazine
Companies with high ESG scores will outperform, because they:
Are a good proxy for superior management
Will attract significant institutional flows
Contribute to Investment Risk Mitigation
What makes our Approach to ESG unique?
Investing with a sole focus on ESG can result in buying over-priced stocks. We create portfolios with superior fundamental characteristics and very high ESG Scores and very low Carbon Footprint at the same time.
What is the expected Performance impact of ESG?
We use MSCI ESG database and we developed our own ARTICO ESG factor, which is a good predictor of future outperformance
Artico Partners is a signatory of the UN PRI, follows the engagement work and the exclusion list of the SVVK (Swiss Association for Responsible Investments), fully supports the PARIS agreement on climate change and is also a supporter of the TCFD (Task Force on Climate-Related Financial Disclosures).
Published ARTICO Research:
Is sustainable investing a positive or negative contributor to outperformance? And how patient do investors need to be to capitalize on any positive effects? Our research results answer these questions and our conclusions on the required time horizon may come as a surprise for investors hesitating to introduce sustainable investing.
As Chairman of ARTICO Partners, Ulrich oversees the business strategy, the product development and the investment activities of the firm. Operationally, he is directly responsible for Risk Management and Compliance. Ulrich is a Founding Partner of ARTICO.
Ulrich has more than 30 years of investment experience and started his career as quantitative research analyst in 1986 at the then Swiss Bank Corporation. His various functions at SBC and later UBS Global Asset Management included: Chief Investment Officer, Co-CEO Switzerland, Chairman of the Swiss Business and Head of the Alternative Investment Management Business (Private Equity, Hedge Funds, Infrastructure). Ulrich holds a PhD in Nuclear Physics from University of Basle.
Dr. Gabriel Herrera
CEO and Senior Partner
As CEO of ARTICO Partners, Gabriel is responsible for all aspects of the business including the product development, client relationships and the investment activities of the firm. Gabriel is a Founding Partner of ARTICO.
Gabriel has more than 30 years of investment experience and started his career as equity research analyst in 1987 at the then Swiss Bank Corporation. His various functions at SBC and later UBS Global Asset Management included: Head of Equity Research, Co-CEO Switzerland and then CEO Europe Middle East & Africa. Gabriel holds a PhD in Economics from University of Basle.
Tero Toivanen
CIO and Partner
As Chief Investment Officer Tero is responsible for the research and development of investment strategies and portfolios. His responsibilities include the continued development of the investment platform and the portfolio management of ARTICO funds.
Tero’s background contains several years of experience in global equity portfolio management and prior experience in the areas of software development, quality management and team leadership. Tero holds MsC in computer science from the Helsinki University of Technology and MBA from the Purdue University. Tero is also a CFA Charterholder.
Michael Brenneis
Head PM and Partner
Michael’s main responsibility is the portfolio management of ARTICO funds. His further responsibilities include the development of the investment platform, and research and development of investment products and strategies.
Michael holds diploma certificate in electrical engineering and MBA from the university of South Australia. He has several years of experience in global equity portfolio management and prior experience in software development in the areas of telecommunications, medical engineering and finance.
Andreas Konrad
COO and Partner
As Chief Operating Officer of ARTICO, Andreas is responsible for the operational part of the investment management, including the fund operations and trading activities.
Andreas‘ background involves several years of work experience in the finance industry, mainly in global equity trading and operations functions. He is holder of Swiss federal diploma in business organization and a diploma in applied psychology.
New Strategic Partnership for ARTICO with SERAFIN Asset Management
Today we can announce the formation of a strategic partnership with SERAFIN Asset Management, ensuring the continuation and further development of our ARTICO Sustainable Equity Funds. It will also provide our entire ARTICO team a broader base to operate in terms of research as well as marketing resources. The leadership, the ARTICO team and the investment process of our ARTICO Sustainable Equity Funds will remain unchanged.
Background and Rationale: We have built a good track record with the ARTICO team over the past 12 years by systematically investing in fundamentally good companies. Since 2019, we have expanded our investment criteria to include a high ESG rating and a low carbon footprint. The result is remarkable, as we not only retained the above-average fundamental properties, but were also able to achieve top ratings for both ESG and carbon footprint at the same time. With ARTICO Sustainable Equity Funds, the investor does not have to make any compromises in terms of performance or diversification and can pursue all three goals of “good performance“, “high sustainability“ and “low CO2 footprint“ at the same time.
Our unique positioning potentially appeals to many investors. However, Artico Partners is often regarded as too small by institutional investors to be able to win larger mandates. Our funds have also not yet had wider public distribution. For some time now, we have therefore come to the conclusion that ARTICO Partners cannot exploit its full potential stand-alone, but must look for a strategic partner with whom the next step will be possible. We have now found the right partner.
Last Friday we agreed on a strategic partnership with SERAFIN Asset Management, which not only brings us synergies in the areas of databases and quantitative research, but also gives us a decisive boost in sales and marketing. SERAFIN Asset Management is a young and entrepreneurial German asset management group with 1 billion AuM, which is already on the map with two asset management teams in Frankfurt and Zug. Besides its quantitative focus, it has one particular investment focus on „innovation“ as a key specialty. Subject to FINMA approval, SERAFIN will initially acquire 51% of ARTICO Partners. The entire ARTICO Partners team will remain together and will become the sustainability specialist within the SERAFIN Group.
Stay anchored on fundamentals (interest rates, valuations and profits)
• The exuberant investor optimism at the end of January went through some reality check in February
• In the month of February global developed markets lost 2.4%, global small caps declined 2.2% and Emerging Markets were down 6.5%
• Predicting future market sentiment is a lottery
• It is therefore better to stay anchored on fundamentals, mainly on interest rates, valuations and corporate profits
• Uncertainties persist around future interest rates decisions by the FED
• Inflation proves to be stickier than expected by markets
• Tight labor markets will further put upwards pressure on wages
• The FED will therefore have to raise rates further and for longerÂ
• Rising rates meet still high historic valuations, not a good ground for sustained market rally in global equities, unless corporate earnings grow faster, which looks less likely to happen
• For emerging markets, valuations are much more attractive
• This together with the re-opening effects of the Chinese economy provides for a better relative outlook for emerging markets
• Swings in US-Chinese tensions will of course affect this path
• ARTICO Sustainable Equity Funds are now Article 9 SFDR and offer a unique combination ofÂ
• a) superior fundamental characteristics,
• b) very high ESG/Sustainability Scores („AA/AAA“ ESG Rating by MSCI) and
• c) very low carbon footprint aligned with Paris-climate objectives
ARTICO funds get approval for classification under Article 9 SFDR
• Luxembourg regulator approved classification of all ARTICO funds as article 9 SFDR.
• This means the highest sustainability category: Our funds follow a clear decarbonisation objective
• Many impact funds are concentrated on a particular sector or theme and are therefore only suitable for a marginal investment allocation
• ARTICO Sustainable Funds can replace a larger portion of traditional investments for more impact as they do not compromise on investment performance nor on diversification
• Besides the positive impact, the inclusion of ESG & Carbon Footprint criteria will also benefit future outperformance as it is a good proxy for better managed companies
Yearly Report & Outlook: Three things to watch for in 2023
• A painful year is behind us driven by inflation and rising interest rates
• 2022 brought significant stress and volatility: A war on European soil, a global energy crisis and significant geopolitical tensions
• For the full year 2022, global developed markets lost 18.1%, global small caps declined 18.8% and Emerging Markets were down 20.1%
• The BIG question is whether the bear market is over: From a historical perspective it would be a surprise not to see much more pain before the turnaround
• The three things to watch for in 2023 are Valuations, the FED and Company Profits
• Current valuations are certainly more attractive than a year ago, but are far from typical distressed bear-market valuations (like at the end of 2002 or spring 2009)Â
• The only exception are emerging markets valuations which are historically attractive, both in absolute and relative terms
• Interest rates are likely to continue to rise a bit more at least for some time
• Company profits have been very resilient in 2022 and were a key reason that equity markets „only“ lost 20% despite horrific news
• If profits weaken across the board in 2023, a second phase of bear-market is inevitable
Apocalypse Now? Better to keep a clear head.
• Equity markets with sharp sell-off as apocalyptic fears mount
• In September, global developed markets lost 9.3%, global small caps declined 10.6% and Emerging Markets were down 11.7%
• It would seem that the horsemen of the apocalypse are saddling their horses:
• (i) A real atomic threat unseen since Cuban crisis 1962
• (ii) Fragile markets awaiting their next „Lehman-moment“Â
• (iii) The latent risk of a subsequent deep global credit crisis
• (iv) The heightened risk of critical infrastructure sabotage following the pipeline-attacks in the North Sea
• Add to that rising interest rates and an expected stagflation and there is not much hope for any optimism
• And that is precisely the good news
• But valuations – while much improved – have not yet reached typical bear-market-lows (see page 2)
• History suggests that the turning point will come when investor sentiment has reached the bottom
• Investors should focus on staying invested in high quality portfolios
•Those who reduced their positions earlier should start planning their re-entry strategy (no rush…and consider a phased approach)
Time to Play „Defense“
• Ukraine war unfolds with appalling brutality
• Markets remain surprisingly resilient considering a) energy and commodity price surge, b) mounting inflation pressure and c) the FED’s tightening of monetary policy
• In March, global developed markets were up 2.7%, global small caps advanced 1.0% and Emerging Markets lost 2.3%.
• Russian equities were taken out of the Emerging Market Index by MSCI
• ARTICO was able to outperform thanks to a low exposure to Russian equities
• The war is just 5 weeks old and scenarios of how this could further develop are very diverse and still unpredictable
• We think the war marks a fundamental change to the world orderÂ
• It is unlikely we will see a return to pre-war conditions
• Russia will fall behind a new iron curtain
• The role of India and China will be decisive and needs to be clarified
• The intensifying global economic war will have long-lasting effect on energy and commodity markets
• This will add to inflationary pressures and most likely reduce global economic growth
• Inflation will become a serious threat to social stability
• Central banks will have to fight inflation and prevent a recession at the same time…an almost impossible challenge
• But: Western economies are strong enough to forego any trading with Russia and their overwhelming economic strength will prevail
• The transition to less fossil fuels will be accelerated
• Playing „Defense“, investors should now focus on high-quality, well-diversified portfolios with excellent fundamental and ESG characteristics
ARTICO wins award as „Best Sustainable Equity Fund Manager Switzerland 2021“
Once the Genie is out of the bottle, it is hard to get it back in
• Market recovery in October despite a long list of ongoing concerns:
• Unsettled pandemic, persisting supply chain shortages, Chinese regulations, declining global growth momentum and the uncertain future interest rate trend
• Global Developed Markets were up 5.7%, Global Small Caps advanced 1.8% and Emerging Markets were up 1.0%
• Central banks continue to navigate in risky waters
• A while ago the FED predicted a short and temporary hike in inflation before it would naturally fall back
• We are now in November and inflation is rising
• Higher inflation with low interest rates is animplicit taxation of the private economy (financial repression)
• This can help reduce real government debt levels, if it lasts long enough
• However letting the inflation Genie out of the bottle is not without risks
• When „temporary“ price increases continue for too long, they can turn into persistent inflationary expectations
• If inflation were to become an issue, it is unclear how central bank would fight it back without a huge damage to the real economy
• Most likely, central banks will therefore have no choice than to keep interest rates artificially lower than justified
