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Pictet explains fund repositioning

Marie-Laure Schaufelberger, Geneva-based senior product specialist, explains why a high dividend fund was turned into the growth-oriented 'smart city' fund.
Marie-Laure Schaufelberger, Pictet Asset Management

Now it is called the Smart City Fund, but before August it was called the High Dividend Selection (HDS) Fund, which was launched in 2010 and focused on companies that were able to sustainably distribute high dividends.

The firm decided to launch the HDS product on the back of its successful product in Japan that followed the same strategy around utilities companies, Schaufelberger told FSA on a recent visit to Hong Kong.

“We thought we could have a global product that was around that income utilities space, but it didn’t actually pick up in many of the markets. So what we did is use the existing structure to launch the smart city strategy.”

The fund was then repositioned into the Pictet Smart City Fund, which fully transitioned at the end of August, Schaufelberger said, noting that 75% of the fund’s holdings are new. The fund is concentrated with 44 names.

Besides being a thematic fund, the new product follows a completely different strategy. The HDS fund was a value-oriented product that provided income to investors, while the smart city-themed product is more of a growth fund, Schaufelberger explained.

Despite the repositioning, the fund has had inflows from investors instead of outflows, according to Schaufelberger. Assets in the product increased to about €700m ($794m) on 30 October from €630m at the beginning of September, according to FE data.

Another product that repositioned this year is Franklin Templeton’s Global Climate Change Fund, which was previously the Global (Euro) Fund.

Purity aspect

The smart city fund invests in companies that contribute to or profit from the trend of urbanisation, according to Schaufelberger.

It identifies three themes: “building the city” — companies involved in the design, construction and financing of cities, “running the city”, which includes companies that provide the backbone and services, and “living in the city” — companies that offer solutions for housing and recreational activities.

The manager invests in companies depending on their “purity”, meaning how much of a company’s revenue is exposed to the theme the firm is looking at.

For the smart city product, the purity level is at least 50% of the companies’ revenues, according to Schaufelberger.

“Essentially what we are trying to gauge is how much a company is linked to the theme. We don’t know what’s going to happen tomorrow [in the equity markets], but we can identify and put a number on those trends or themes.”

The purity aspect is also aimed at reducing the chance that holdings in one of the firm’s 10 themed funds will overlap with another and with the MSCI World Index, according to Schaufelberger.

The target is a 10% maximum overlap between funds, Schaufelberger said. The 10% wall is necessary considering the firm has three technology-focused funds.

Financials and urbanisation

The smart city-themed fund’s top holdings has financial services names, which is odd for a fund that focuses on urbanisation. Mastercard and Visa have a combined 7% weighting, while Singapore-based DBS Bank accounts for 3.5% of the portfolio, according to Shaufelberger.

She explained that both Visa and Mastercard are now focusing on digital payments to make cities more efficient.

Turning to DBS, sher said that the bank does a lot of financing for projects in Singapore, which is one of the smartest cities globally.

The bank also provides loans to Southeast Asia companies that have a focus on developing smart city technology, she added.

“The bank is very focused on the smart city trend through its activities in Southeast Asia, so you wouldn’t have just any financials in there.”

The Pictet Smart City Fund versus its reference benchmark since the fund’s repositioning.

Source: FE Analytics. Note: Fund and index NAVs have been converted to US dollars

Part of the Mark Allen Group.