From Citywire

Chief investment officers need to drive investment thinking, but must also combine macro- and micro-management skills to ensure they know what vehicle they are really in charge of.

That is according to Renato Zaffuto, chief investment officer at Italian group Fideuram, who said super allocators need to be aware of what kind of CIO or investment head they are trying to be.

‘In my opinion there are two key components: one hard and another soft. The hard component is looking at market drivers to get insights about direction of growth, inflation and monetary rates modelling trajectories across the next four quarters. This is to get an idea about the fair value of asset classes, modelling terms, and credit and equity premia.

‘The soft component focuses on secondary drivers, which can explain why short-term market prices may deviate from estimated fair value due to flows and technical or behavioural reasons,’ he added.

Zaffuto said a key skill for investors is generating ideas to unlock opportunities or adequately hedge across economic cycles and volatility regimes. This can mean taking a much closer look at the tactical tilts in terms of portfolio exposure.

‘I think that the most important qualities are combining a solid model-driven process with analysing developments in the global economy and financial markets,’ he said.

‘This is in order to identify and look at the main trends which explain returns from the main asset classes, with a team of portfolio managers and analysts who are specialists in each segment of the global market.’

Zaffuto sees his job as ultimately about getting investors to a set destination. ‘An asset allocator is as a driver, who must know if they are driving a compact car, an SUV, a limousine or a truck,’ he said.

‘You need to look at the type of road, the weather conditions and if it is light or dark out there. You control the car’s dashboard and signals and adjust her drive in different conditions. A good CIO needs to have a flexible and open mindset in that regard.’

Zaffuto added that CIOs must also not be afraid to cut ‘loved’ positions for fear of overfamiliarity. ‘The real world is non-linear and time-varying. As a result, an asset allocator must avoid having an approach based on simple deterministic valuation models as the only compass.’

 

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