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TOBAM offers maximum diversification

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Paris headquartered TOBAM is a USD8.5 billion investment firm, devoted to diversification and their patented ‘Maximum Diversification’ approach.

Yves Choueifaty, President of TOBAM, and founder in 2005 says: “We have one strategy only and that is to build the most diversified portfolio that could be built on a universe of assets, in a long only fashion, without leverage and fully invested.”

Choueifaty says that modern market cap weighted benchmarks are far from being diversified, with IT and financial stocks dominating the major US indices at the moment. “The benchmark indices are not a neutral choice, what we have tried to build is a neutral portfolio. We believe it doesn’t make sense to automatically and systematically change your allocation when the price is at its highest.”

Choueifaty describes his approach as smart beta but is keen to achieve a clear definition of the term. “It’s very important that we specify precise definitions for those terms,” he says.
“I define beta first as the opposite of alpha – alpha is about being insightful while with beta, you have zero insights. We are part of the beta world which many others claim they are too, but aren’t exactly there. Incorporating risk factors is not smart beta, they are alpha.”

Choueifaty believes his portfolios have three outcomes: they are more diversified, with the specific aim of reducing risk by 10 to 30 per cent, outperformance of 2-400 basis points a year and the third outcome is that his portfolios are expected to underperform between two and four years every 15 years.

“I am diversified with no bias but the benchmark is biased. The US market cap benchmark is biased to financials and IT today and they have been doing extremely well recently which means that as a diversified portfolio, we are currently underperforming the benchmark. Eventually it will concentrate further or I will outperform. I believe the current concentration is dangerous from a short-term point of view, it is not sustainable.”

Some 56 per cent of TOBAM’s clients are public entities such as sovereign wealth funds or public pension funds and 40 per cent are based in North America, and 7 per cent in Asia and Middle East.

The firm launched ETFs in partnership with Canadian firm Mackenzie Investments last year. Recent news from the firm was the hire of Frédéric Jamet as Managing Director, Head of Trading and co-Head of Research.
 

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