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.
In Times of Negative Real Interest Rates, Stick to Real Assets!
• Developed markets experienced a surprisingly strong rebound last month
• The optimism was due to better than feared corporate earnings and hopes of less monetary tightening
• In July, global developed markets gained 7.9%, global small caps advanced 6.6% and Emerging Markets were flat -0.2%.
• Central Banks claim to be determined to fight inflation
• They started to administer a withdrawal therapy from past monetary excess addiction
• At the same time real interest rates remain at historic lows not seen since Second World War
• Interest rate increases lag inflation rates by a big margin
• Central banks can hardly raise interest rates to needed levels as the global burden of public, household and corporate debt has reached unprecedented magnitudes
• Hence, inflation control becomes more a hope than a real plan
• What does it mean for investors?
• We believe real interest rates will continue to be negative for quite a while
• Nominal investments are a very unattractive proposition
• Equities will gain some support from these negative real rates, but valuations are likely to be fragile
• A recession and a global economic slowdown with at least some more repercussions on corporate earnings seems unavoidable
• We strongly recommend to stick to real assets and to favour equity portfolios invested in stocks with highest fundamental quality
• ARTICO Sustainable Equity Funds are the first and so far only funds to combine those required characteristics
• 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
It is not the time to succumb to the temptation of reduced valuations
• Inflation and interest worries led to weaker equity markets
• In June, global developed markets lost 8.7%, global small caps declined 10.4% and Emerging Markets were down 6.6%.
• Global markets trade now around 20% lower compared to the start of the year despite still strong company results
• While ARTICO funds continue to report against standard MSCI benchmarks, we have added Paris-aligned MSCI benchmarks for the more recent history given all our funds are aligned to the Paris Climate objectives
• Equity market valuations have come down significantly(see page 2)
• Is it time to buy more equities?
• Investors should carefully watch inflation/interest rates and corporate earningsbefore taking such decision
• Given energy/commodity prices, supply chain shortages and labor shortages in certain industries inflation could be much stickier than anticipated
• The half-hearted tightening of monetary policy could prove to be not effective enough to combat inflation
• At the same time it could damage market liquidity enough to trigger a serious debt crisis
• See Italy’s government bond spreads before the ECB has even started to increase interest rates
• The other aspect to closely watch are aggregate corporate earnings
• It will be decisive if they remain robust or start suffering from global economic issues
It is Not Over Yet: Keep Your Defense Up!
• Equity markets are digesting the new realities
• Tightening of monetary policy and supply uncertainties for energy and commodities
• In May, global developed markets were essentially flat (+0.1%), global small caps declined -0.6% and Emerging Markets gained +0.4%.
• ARTICO Global Core and ARTICO Emerging Markets received 5 Star***** Performance rating from Morningstar
• The end of the war in Ukraine seems far away
• Energy and Commodity prices are close to all-time highs
• Uncertainty around economic growth and recession risks remains high
• Interest rates are on the rise
• But: Market valuations have come down and earning yields look still attractive
• First signs inflation could be peaking
• So, would now be the right time to buy the dip?
• We believe that markets will stay fragile and are not ready for a sustained bull market before:Â
• a) inflation is under control
• b) monetary policy is therefore better predictable and
• c) recession risks are gone
• As this is not the case yet, we recommend to keep your defense up and not to rush into trying to capture a possible short term rally
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
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
