In 2002 Luca Pesarini (photo) and Arnoldo Valsangiacomo launched their first Ethna-AKTIV fund, at a time when multi-asset funds were not yet commonplace. In 2010 they founded ETHENEA Independent Investors, headquartered in Luxembourg. Upon its 10-year anniversary, Investment Officer had an exclusive interview with them.
What motivated you to launch a multi-asset fund?
Luca Pesarini: Multi-asset funds were underrepresented at the time and hardly even existed. That is where we saw our opportunity. For us, it was important to offer an actively managed ‘one-size-fits-all’ product that could better absorb capital market fluctuations, not only to large institutional investors but also to private investors. Based on these ideas, we launched Ethna-AKTIV in 2002, Ethna-DEFENSIV in 2007 and Ethna-DYNAMIC in 2009. And these basic principles have been guiding us for almost 20 years now.
Why did you decide to give the funds the prefix “Ethna”?
Arnoldo Valsangiacomo: “Ethna” was created in reference to the Etna volcano. The idea was to give the first funds a disruptive and active feel, hence Ethna-AKTIV. A volcano is constantly in motion and produces something new. We found the symbolism very appropriate at the time.
Two of the three Ethna funds have now experienced two financial market crises. What were the requirements for managers of multi-asset funds in 2008, and what are they now?
AV: Flexibility, flexibility and more flexibility. Ideally, you should anticipate a crisis or market movement and act accordingly, i.e. before these movements affect the portfolio. Of course, this does not always work, but in any case you need to be able to react quickly. That is why we also attach great importance to the liquid assets in our funds, in order to manage the risks in the portfolio. But the world is changing. What worked during the 2008 crisis is no longer working in the same way today. At the time, cash was definitely still an attractive option. Today, with negative interest rates, we are in an entirely different situation. The need to be flexible remains. That was true then and it still is.
What lessons from the previous crisis are you still benefiting from today?
LP: Humility and knowing that you can and will make mistakes. You have to accept that, but move on and adapt to the new situation in a flexible way.
Nobody saw the coronavirus and its impact on daily life and the global economy coming. In this respect, everyone had to adapt to a new situation. What long-term effects do you expect the virus to have?
AV: We have to make a distinction here. There is a long-term trend that has nothing to do with the coronavirus. Worldwide, but especially in Europe, economic growth is levelling off. On top of that, we now have Covid-19. This has clearly not been conducive to economic development and has rather exacerbated the situation. In other words, Covid-19 accelerated the already persisting fundamental weakness of the economy, which previously could not be averted by central bank and fiscal policy measures. This will undoubtedly cost countless jobs and may also lead to social tensions. No one knows how long the coronavirus crisis will last. We can only hope that it will not last long.
LP: For us, this means also exploring new paths in portfolio management and deploying new instruments. For example, only a few years ago, because of the continuing economic weakness, we took the decision to go for gold. Especially since the coronavirus, gold has become even more attractive to us. In addition, we still consider a defensive positioning for our Ethna funds to be appropriate.
Could you elaborate on this? How will you position Ethna-AKTIV in the short, medium and long term?
LP: We live in a world which is manipulated in every way by central banks and governments, i.e. by control of both currencies and interest rates. In some countries this certainly applies directly or indirectly to the stock markets. We need to adapt our portfolio to this environment and act flexibly. On the equity side, our positive attitude towards gold is confirmed when we look at gold mining stocks. In addition, we prefer technology, i.e. everything related to online trading, cloud computing / data processing, payment services and software. In general, we are positive about the US stock market, as shown by our S&P 500 allocation, and remain rather pessimistic about the European market. On bonds, we consider a neutral position in Ethna-AKTIV of around 50% appropriate in the coming months and probably also for 2021. In addition, we will make opportunistic use of an exposure of 5-10% to high-yield bonds in the bond portfolio.
AV: The most important recent decision was to exit the US dollar. This was a big decision for us that we took at the right time, just before its devaluation. We did this despite our pessimistic outlook for the euro. We also expect the CHF to continue its positive development.
If we look ahead one year into the future, what topics do you think will define 2021?
AV: At the moment we do not know how long Covid-19 and the coronavirus crisis will affect us. However, we believe that the trade war between the Americans and the Chinese in 2021 may continue to play a role, depending on the outcome of the US presidential elections in November. In addition, there is high unemployment and accommodative fiscal policies in several countries. Perhaps we will have to adopt a new way of working. Distance is taking on a completely different meaning. At present, it is impossible to predict how the markets will develop in the coming year. But we believe that 2021 will certainly be a long and exciting year for all of us.