Christian Kemper, Extra Bankmagazin

Diego Föllmi, Partner and Member of the Executive Board of Hérens Quality Asset Management, on the growth potential of his business and the long-term consequences of the presidential election in the US for the equity market.

Mr. Föllmi, who are Hérens Quality Asset Management’s clients in this country?

In Germany, we exclusively serve institutional investors. But within this segment, we cover a broad spectrum. These include banks and insurers, pension funds, church institutions, family offices and independent asset managers.

How do you define the quality of your asset management, which is so prominent in the name?

We are strongly focused on the business quality of our investments combined with an attractive valuation. This means that only shares of companies that meet all our quality and valuation criteria are included in our portfolio. In doing so, we take a close look at various areas, such as the financial framework, the business model, the management, and the market and positioning of a company. Our approach is 100 percent bottom-up and bestoverall. In other words, we assess and analyze every stock within an investment universe, for example in the EURO STOXX 600, irrespective of its sector.

What can a Swiss asset manager do better than its German competitors?

I don’t see any country-specific differences in asset management. There are specialized providers in both Germany and Switzerland. The decisive factor is that an asset manager knows his core competence. And in our case, it is the quality investment style that gives us a pioneering role internationally. Such a style is an important differentiator and, provided it is systematic, relevant and stable, can deliver added value for clients in the form of an independent performance and risk character.

What growth prospects do you see for asset management in Germany?

Provided an asset manager can deliver added value, we judge the growth prospects to be very good. It is precisely in a difficult market environment that the wheat is separated from the chaff. Moreover, many institutional assets have been passivated in recent years. There is some justification for this. But we believe that assets should be invested in several systematic and clearly demonstrable investment styles. And Hérens Quality is one of them.

How is the Corona crisis affecting your business?

Of course, we were negatively affected by the restrictions. We are glad that travel is now possible again and hope it will stay that way. However, the performance and risk character of our portfolios proved their worth during the Corona crisis, just as they have in past difficult market phases. In such times, investors are more concerned about their portfolio direction. For these reasons, the environment is good for us to attract new prospects to our approach. As a result, we have been able to increase our customer base by around ten percent since March.

And what traces has the virus pandemic left in customer deposits so far?

To date, our customers are up year-on-year in all their equity portfolios. From this perspective, the portfolios have recovered very quickly from the price slump in the spring caused by the Corona virus. In relative terms, we are again in a very good position year-on-year and can report significant outperformance in all regions.

To what extent have you adapted your investment approach to the Corona crisis?

Not at all. We only adjust our investment approach when fundamental conditions change. However, this rarely happens in crises and therefore such market phases are usually not suitable for changing strategies in the long term. After all, crises are often only triggers for change. Many structural problems were already in place long before the virus pandemic broke out. For us, this means that we will remain unconditionally faithful to business analysis, our discipline and systematic approach, so that we can continue to be well positioned for our customers in the future, especially in crisis situations.

What is your forecast for the stock markets in Germany, the U.S. and worldwide until the end of the year?

Structurally and above all in the medium and long term, we are confident about the development of the stock markets. But to venture a short-term forecast would be negligent, especially this year. We are medium- and long-term investors. Timing the market is not our investment strategy. We believe that good risk management consists of ensuring that our customers do well in any environment.

What impact will the upcoming U.S. election have on your forecast?

As I said, short-term timing strategies are not our style. What is certain, however, is that the U.S. election will bring more volatility to the stock market. After all, there are many unknowns ahead of us. The further development of the share price will also depend to a large extent on how clear the result is, when it will be known, who will win and how the losing party will deal with it.

Does the rule that a Republican U.S. president has a positive effect on stock prices still apply?

That’s speculation. But both presidential candidates have their eyes on sectors of the economy that are closer to them. If Donald Trump is re-elected, energy and financial companies that have already benefited from regulatory easing over the past four years will probably have an advantage. With Joe Biden as the new U.S. president, companies from the infrastructure and healthcare sectors could expect advantages, also because he has promised his voters a comprehensive social, climate and economic stimulus package. How sustainable such developments are also depends heavily on the balance of power in Congress. In recent times, however, Democratic presidents have had a significantly better stock market record than Republican ones. Irrespective of the outcome of the U.S. election and driven by the Corona crisis, corporate stocks with a focus on digitization and climate protection should continue to gain ground.