Tough 2012 sees Alt Ucits stars boost defensive options

Citywire Alt Ucits A-rated managers César Zeitouni and Giles Lenoir have expanded their investible universe to include utilities in order to increase their exposure to defensive names.

The Paris-based duo, who co-run the €612 million Exane Funds 1- Archimedes Fund , said they had begun investing in the sector in order to help better balance their portfolio.

Previously they had focused their defensive allocations solely on telecoms but Lenoir, speaking on an investor update call, said this had cost them 109 bps of performance over 2012.

‘There was a series of mass de-ratings which was driven by dividend cuts and telecoms companies opting to re-increase their capex spend on themes such as 4G and fibre optic,’ Lenoir said. ‘The sector essentially lost its defensive profile.’

The difficult period of performance for telecoms saw Lenoir and Zeitouni drop their allocation to telecoms names from 22% at the start of 2012 to 5% by the end of the year.

The move to increase the strategy's focus follows the decision of fellow Exane manager Charles-Henri Neme, who runs the Exane Funds 1 - Ceres fund, to expand his investible universe at the end of last year in order to access opportunities in the automobile sector.

Balance

Lenoir, who previously covered utilities as a prop trader, said the addition of utilities would complement the existing work on defensive names in the sector.

‘The idea of adding opportunities to the defensive pocket has been assessed and reassessed for the last two years. Utilities have strong similarities with the telecoms sector, they are infrastructure driven sectors, both have strong regulation and high dividend yield.’

The strategy will now comprise of 45% telecoms, 40% technology and 15% utilities. The number of stocks held in the portfolio will also be expanded to 70 in order to take in the new sector.

Over-capacity will be the main theme for investment, Lenoir said, with the fund aiming to be long environmental services and short power generation companies.

‘Everyday there is more excess capacity, at the same time, the demand for power is declining, not just because of the macroeconomic conditions but also because of innovations in energy.’

Lenoir and Zeitouni – who added telecoms analyst Ingrid Allemand to their team in October – have returned 10.86% over the past three years. This compares to the average manager in the Citywire Alternative Ucits Long/Short Equity sector, who returned 12.25% over this period.