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.
Keep Defense up: Switch into high-quality real assets!
• Equity markets had to cope with several negative factors last month
• Further escalation of the war in Ukraine, uncertainties for oil & gas supply, the shift in monetary policy and the new severe lockdowns in China
• In April, global developed markets were down 8.3%, global small caps declined 6.8% and Emerging Markets lost 5.6%.
• ARTICO received 5 Star***** Performance rating from Morningstar for its Global Core and Emerging Market funds
• It seems the war in Ukraine is not going to be over soon
• Russia will most likely become increasingly isolated with permanent impact on Oil & Gas and commodities in general
• The challenge of central banks to fight inflation, prevent a recession and stabilise markets is huge
• Equity market valuations (see page 2) have normalized when looking at current prices and current earnings
• Is it time now to buy the dip and increase the allocation to risky assets?
• We recommend to keep your defense up and see how things evolve, in particular company earnings and interest rates
• After the unprecedented monetary expansion, the current inflation rates and the expected rise in interest rates, nominal bonds will not be able to protect wealth in real terms
• We think that Real Assets of highest quality represent the most solid strategy to go through a period of huge uncertainty
• Highest quality means: companies with proven business growth, robust profitability, a sound balance sheet, a good position in terms of ESG and well-prepared for the transition towards a fossil-free economy
• ARTICO Sustainable Equity Funds are the first and so far only funds to combine those required characteristics
• a) a higher probability of future outperformance,
• b) very high ESG/Sustainability Scores („AA/AAA“ ESG Rating by MSCI) and
• c) very low carbon footprint aligned with Paris-climate objectives
• 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
In a changing world order, stay focused on fundamentals!
• The Ukraine conflict has escalated into a war.
• Despite significant global repercussions on economic outlook, inflation and the world order, markets remain surprisingly resilient.Â
• Global sanctions have made Russian equities de facto uninvestable
• Artico’s exposure to Russian stocks was underweight. Remaining exposure is marginal.
• In February, global developed markets were down 2.5%, global small caps declined 0.8% and Emerging Markets lost 3.0%.
• What will the world look like after the dust has settled?
• As we write this report, the war and the related sanctions are far from over and it is currently unpredictable how the crisis will develop
• Historically, markets tended to turn around once a war had started
• This time it is not clear as the potential for further escalation cannot be really priced-in by markets
• The impact of the changing world order on energy, commodity and global trade will become apparent over time.
• The already overshooting inflation will not be helped
• The buoyant economic growth might be significantly affected
• Therefore, the already difficult balancing act needed by central banks has become even more challenging
• For sure, markets will remain volatile
• Is it time to buy risky assets or is it better to reduce risk?
• We suggest to stay focused on the chosen strategy and to use market corrections to rebalance the portfolio
• Preference should be given to 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
Beware of Exuberance in Large Cap Growth Stocks!
• Markets were overall flat in January with the exception of emerging markets
• Global developed markets were down 1.0%, global small caps gained 0.7% and emerging markets advanced 3.1%
• Investors started to worry about the pandemic (delay in vaccines, new mutations) and the risk of a slower than expected economic recovery
• Artico’s stock selection contributed very positively across all funds
OUTLOOK:
• Since a couple of years performance of large cap growth companies has been particularly strong
• This has led to a significant valuation differential with a high potential for a reversal
• Of course market distortions can prevail for much longer than one would thinkÂ
• The time has come to be very cautious with focused investments in the past winners like large cap growth stocks
• Equity markets more generally reached the danger zone with very high historic valuations and several signs of bullish over-optimism
• Markets are therefore vulnerable for a correction
• However, given expansion of central bank balance sheets and piling up of government debt, nominal assets (bonds) look even less attractive
• The long term case for real assets like equities is therefore very strong
• Artico Sustainable Equity Funds are well positioned to navigate through trend reversals and potentially turbulent times for three reasons:
• First, Artico is invested in companies with fundamental characteristics of highest quality
• Second, Artico funds have no single style bias (growth versus value)
• Third, Artico funds cover the full spectrum of market capitalization (large, mid and small caps).Â
