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The Evolution of DNB’s Own Multi-Manager Vehicle

Report: Private Markets

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Stockholm (HedgeNordic) – Multi-manager hedge fund platforms have gained significant attention in recent years, partly due to their ability to provide access to a diverse range of investment strategies under a single umbrella. Since the early days of the coronavirus pandemic, DNB Asset Management has operated its own multi-manager platform, integrating its internally managed, best-of-class strategies into the multi-asset, multi-strategy absolute return fund, DNB Fund Multi Asset.

DNB Fund Multi Asset’s underlying strategies are broadly categorized into two segments: alpha and beta strategies. “Currently, around 75 percent of our portfolio falls within the alpha bucket, which includes a substantial allocation to equity long/short strategies,” explains Kim Stefan Anderson, a portfolio manager who has been part of the DNB Fund Multi Asset team since its inception in early 2020. The fund includes three distinct absolute return long/short equity strategies: a Norwegian-focused strategy, a global financials-focused strategy, and a well-known TMT (Technology, Media, and Telecommunications)-focused strategy. 

“Currently, around 75 percent of our portfolio falls within the alpha bucket, which includes a substantial allocation to equity long/short strategies.”

“These three strategies account for about 50 percent of the Multi Asset Fund’s exposure as of now,” notes Anderson, who oversees the fund’s allocation and risk alongside Daniel Berg. The alpha bucket also comprises two macro-trading-focused strategies: a non-directional discretionary equity futures strategy and an FX-focused strategy, in addition to a directional diversified trends (CTA) strategy.

On the beta side, DNB Fund Multi Asset incorporates both fixed-income and equity strategies. “In terms of fixed income, we have a Norwegian investment grade strategy, the global Fallen Angles strategy, and a new pure duration strategy that we added last year,” explains Anderson. This latter strategy focuses exclusively on US and European mid- and long-term treasuries to capture duration. On the equity front, DNB Fund Multi Asset is allocated to a global minimum volatility equity strategy. “In total, we currently have ten investment strategies,” adds Anderson.

Allocations Across Strategies

With DNB Fund Multi Asset allocated across ten different strategies characterized by either alpha or beta traits, the allocation within these broader categories and individual strategies can shift based on prevailing market conditions. “There are several factors in play when deciding the allocation,” says Anderson, who has been responsible for allocation and risk management since the fund’s inception. “We hold investment committee meetings every other week, where we collectively evaluate all strategies in terms of risk, returns, and the overall market environment,” he explains. “We also assess beta potential in markets, macro trends, and environmental shifts, among other considerations.”

“We hold investment committee meetings every other week, where we collectively evaluate all strategies in terms of risk, returns, and the overall market environment.”

These investment committee meetings form a solid foundation for the team’s allocation decisions regarding DNB Fund Multi Asset. “We develop an understanding of each strategy’s outlook in terms of risk and reward, and we examine their correlations both with each other and with the broader market,” elaborates Anderson. A crucial initial decision involves determining the split between the “alpha” and “beta” components. “During 2022 we made significant adjustments to the portfolio, both in terms of strategy mix and allocations. In many ways, this was a strategy evolution for the fund, we went from beta-heavy to alpha-focused,” Anderson emphasizes. “We now aim to ensure that the portfolio can endure any market drawdown. So, we significantly increased our allocation to alpha, as well as added several new strategies to provide stable, positive returns in any environment,” he continues. This decision has yielded positive results for DNB Fund Multi Asset.

“During 2022 we made significant adjustments to the portfolio, both in terms of strategy mix and allocations. In many ways, this was a strategy evolution for the fund, we went from beta-heavy to alpha-focused.”

Launched during the tumultuous market conditions triggered by the coronavirus pandemic, DNB Fund Multi Asset faced a challenging first year, ending 2020 with flat returns, followed by a 4.2 percent advance in 2021. The fund encountered another difficult year in 2022, with a slight decline of 1.8 percent. However, DNB Fund Multi Asset has embarked on a solid upward trajectory since mid-2022, concluding 2023 with a 6.2 percent gain and achieving over eight percent growth thus far in 2024. The fund also enjoyed 15 consecutive months of positive performance through the end of the summer.

“If you consider the period from 2022 to now, the fund has delivered a Sharpe ratio of about 2.5. The performance has been very strong,” Anderson summarizes the fund’s performance. “Most of this success stems from our significant increase in the alpha allocation. All our equity long/short portfolios have performed exceptionally well during this period, delivering stable and positive returns,” he elaborates. Additionally, the macro and trading strategies have also fared well during times of equity market weakness.

In Focus: Norwegian Equity Long/Short Strategy

One of the standout performers within DNB Fund Multi Asset’s portfolio has been the Norwegian-focused long/short equity strategy. Initially targeting an annualized return of eight to ten percent, this strategy managed by portfolio manager Eivind Veddeng Sars has achieved an annualized return of 12 percent with zero beta – “well beyond our original expectations,” Anderson remarks.

The strategy is a Norwegian equity market-neutral book, not by definition, but by choice,” explains Sars, who employs a bottom-up, stock-specific approach to identify long and short positions in the Norwegian equity market. “We prefer low systematic risk and a high degree of stock-specific risk,” he states, noting that he aims to maintain relatively low exposure to broader macro factors, despite the ability to take sector views. “We can opt for higher beta exposure if we believe that the Norwegian or international markets are undervalued enough, but we haven’t pursued that yet,” Sars adds.

Typically, the Norwegian long/short equity strategy maintains a portfolio of around 60 positions, evenly split between long and short. Sars distinguishes between short positions, classifying them as either funding or alpha shorts. “We have a few names on the short side where we believe expectations are too high or stock prices are inflated, but most short positions primarily serve to fund our long positions,” he explains. Ultimately, “we strive to be fairly systematically neutral.”

“That’s the beauty of the Norwegian market – we can develop models and build a view on every single stock.”

Eivind Veddeng Sars, Portfolio Manager at DNB Asset Management.

Given the relatively small size of the Norwegian equity market compared to other international markets, Sars and his team can form a comprehensive view of every listed company. “That’s the beauty of the Norwegian market – we can develop models and build a view on every single stock,” he states. “We analyze each name on the stock exchange from eight different angles, considering everything from valuation to momentum, risk, ESG factors, and more.” Sars describes himself as a “big fan of earnings momentum,” which he believes must be combined with an attractive valuation.

The cyclical nature of many businesses in the Norwegian equity market also presents significant opportunities for long/short equity managers like Sars. “We see considerable dispersion within sectors, which makes it easier to capture alpha statistically in the Norwegian market,” he explains. “It’s an odd market with a lot of cyclicality and unique nuances, which, in my view, makes Norwegian long/short equity particularly attractive.”

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Eugeniu Guzun
Eugeniu Guzun
Eugeniu Guzun serves as a data analyst responsible for maintaining and gatekeeping the Nordic Hedge Index, and as a journalist covering the Nordic hedge fund industry for HedgeNordic. Eugeniu completed his Master’s degree at the Stockholm School of Economics in 2018. Write to Eugeniu Guzun at eugene@hedgenordic.com

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