18 Nov 2013 Cyril Freu, Fund Manager, DNCA Invest MIURA
Cyril Freu is a graduate of the French financial analysts’ association has a post-graduate degree from Sciences-Po Paris and a master’s degree from Paris-Dauphine University.
He began his career as a broking house financial analyst from 1998 to 2005, first at CPR Finance and then at IXIS Securities. He was elected best financial analyst across all sectors in 2005 (Extel Focus France, AGEFI). In 2006, he was transferred to the proprietary management team at IXIS CIB – which later became Natixis – and managed a diversified portfolio working on fundamental valuation strategies. Cyril Freu joined the management team of DNCA Finance in September 2009.
LUXHEDGE : DNCA Invest MIURA is presented as a Long/Short European Equities Absolute Return fund in your factsheet. Can you give us more information regarding the main characteristics of the fund?
CYRIL FREU: MIURA is a Long/Short fund focusing on large and mid-cap European companies (listed in the Euro zone, UK, Switzerland, and Scandinavia). It is run by a team of three former sell-side financial analysts who implemented a fundamental model. This model follows three main pillars: 1 – we put company valuations at the heart of the investment process, 2- we only invest in companies we know well, 3 –for all of these companies, we set up our own P&L forecasts and valuation models (globally more than 120 European companies covered today). Within this company landscape, we try to find absolute ideas (“companies we consider undervalued or overvalued in absolute terms”) or relative ones (“companies we consider over or undervalued compared to other companies in the same sector or compared to their sectors”). On average, 50% of the portfolio is made through absolute convictions (buying ideas and selling ideas put face to face whatever the sectors) and the remaining part through relative convictions (pair trades in the same sector). We have to emphasize that we don’t use any complex derivative products – like call or put options – in our process. We only use futures on market or sector indexes to hedge some of our positions.
LH: LuxHedge has included MIURA in its Equity Market Neutral Index. Do you agree and what about the targets of the fund?
CF: Yes, our net exposure (long-short / Asset under management) has to remain within the range -20%/+20%. So clearly, our performance is built on our capacity to detect, thanks to stock picking, good longs and good shorts and the impact of market direction is marginal. So, it seems completely adequate to include it in your market neutral index. Besides, our targets are in line with a market neutral profile. The first target and the only official one (within fund prospectus) is to preserve capital each year no matter how the European equity market behaves. This target has to be reached with a low volatility, significantly weaker than the one of European Equity market. To give more indications to our investors, we have more precise internal targets which are to deliver an average annual excess return of 5% above EONIA over 5 years (period corresponding to a stock market cycle) with an average volatility of around 5%.
LH: Can you tell us a little more on your team and organisation?
CF: I run a team of three people who were previously well known sell-side financial analysts. I am 40 and I have been working for more than 10 years with Mathieu Picard, 35. Mathieu was in my team when I have been elected as the best French sell-side analyst in 2005 (EXTEL Focus France Survey). We moved together in January 2006 to develop a long/short portfolio within the prop trading team of IXIS CIB (part of Natixis today). In this position, we managed to deliver positive returns each year from 2006 to 2008, performances which have been validated by Natixis top management when we left them in 2009 to join DNCA in order to launch MIURA. So, Mathieu is my real back-up and we have already shared a lot of experience on the past 10 years. In addition, in 2011, we hired Boris Bourdet, 35, to complete our sector coverage. I knew Boris very well as I have participated to his hiring for IXIS 10 years ago even if he was not in my sector team. Today, if I have to summarize our organisation, I would say that I am more in the position of portfolio manager than the one of an analyst and that Mathieu and Boris are more analysts than asset managers, even if the different functions are shared. I am very proud of this very competitive team which is maybe the strongest asset of MIURA.
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| Cyril Freu | Matthieu Picard | Boris Bourdet |
LH: Could you elaborate on your recent strategy?
CF: In a nutshell, events of the summer 2011 have led to the scare of a huge financial crisis comparable to the one of the 30’s which could have ended up with the collapse of the Eurozone… During this period, European equity markets have showed a very strong dichotomy. Stock prices of companies considered risky either because they had an important exposure to the Euro Zone or because they were considered as too cyclical have decreased strongly and with no correlation to their earnings evolution. On the other side, stock prices of defensive companies with an international reach increased strongly with weak correlation to their earnings evolution. So temporarily, earnings evolution and levels of valuation were no more the main drivers of stock price evolutions. This “abnormal” configuration offered us very interesting relative investment opportunities at the end of 2011 and on the first half of 2012. Although it has had a negative impact at the beginning (at June 2012 YTD performance was -2%), we were convinced by the strong medium term potential. Just to illustrate, in June 2012, the long part of our portfolio had an average valuation which showed a 60% discount compared to the short part…. From the summer of 2012, MIURA entered in a pay-back period. Over the past 15 months, MIURA performance is close to 15% and is above 10% over the last 12 months. The relative valuation discount between the long and the short part of our portfolio is still at 40% and the potential of re-convergence is far from over. Therefore we consider that this ongoing re-convergence should continue to drive MIURA performance over the coming months.
LH: MIURA was launched on November 16th, 2009. Happy birthday! Could you briefly comment on your performance over these 4 years?
CF: In prop trading for IXIS/Natixis (2006-2008), we managed to deliver a positive return each year, including 2008, and to deliver an Eonia + 5% average excess return over three years. Since its launch at the end of 2009, MIURA delivered more than 15% in terms of cumulative return when the risk free rate generated 1.7% and the Eurostoxx 50 index 5%. We have been positive each year excluding 2011 where the capital preservation has been close to be delivered (-1%). It’s not the market declining configuration which explained this unfortunate little gap, it’s more the configuration we described previously which hit performances from November 2011 to June 2012 but which fuelled all the performances afterward. Excluding 2011, we have been in line with our Eonia +5% target each year and we are +7,40% YTD this year. In conclusion and it is the most important analysis for me, on the past 8 years we have successfully faced two major crisis within the equity market with the subprime one followed by the sovereign debt crisis and I think this achievement confirms the solidity of our team and of our model.