Daniel Rock is a contributor to SharingAlpha, which as readers of fundeye know, is an online community of professional fund buyers.
Due to his success in picking funds that have proved to generate alpha, he is among the top selectors on SharingAlpha’s books.
Based in Sweden, he has worked for the company he founded - Europeiska Investeringsrådgivarna AB - for nearly three decades.
Mr Rock has two licences for insurances and investments, and is also associated with financial advisory organisation, Hjerta, which is an intentional misspelling of the Swedish word for heart. The umbrella group is home to 140 advisors, working across 40 locations in Sweden.
Currently, he has eight funds on his list, with 75 percent of his resources allocated to his four Swedish strategies, and 25 percent toward four international products. Approximately, 95 percent of his assets under management are in equities, with only five percent in bonds. He is particularly attracted to Swedish strategies brave enough not to rely on banks even though the four major banks make up 20 percent of the domestic index.
Alongside his commitment to actively managed, index-sceptic products, Mr Rock places a great deal of emphasis on the fund managers themselves. He wants them to talk a good game, but also expects to see their philosophies reflected in their investment approach. Typically, he prefers concentrated portfolios which he thinks reveals the true confidence of a portfolio manager more than the gift of their gab. Mr Rock feels that fund managers are paid for their judgement and in his view, they should commit to their vision if they want to be selected.
This perspective is very much in keeping with his approach to equities. He wants funds to be ‘high-octane’. When equities begin to outperform, and their funds begin to beat the benchmark, managers need to participate as much as possible.
The current market
Following the arrival of multiple successful vaccines, the macroeconomic outlook for global markets is increasingly characterised by the idea of recovery.
After ten months of instability, the International Monetary Fund is forecasting worldwide growth of approximately 5.2 percent, in an investment climate increasingly defined by ultra-low interest rates.
In such an evolving landscape, formerly defined by volatility and instability, but now driven by optimism and a growing readiness from investors to embrace risk, Mr Rock is convinced his approach to selecting funds will strike a chord with clients.
Speaking to Fundeye, Mr Rock outlines that his position on what products remains unchanged even as investors rush back and forth from various flights to safety.
Behind his genial personality and calm voice, which he utilises to methodically outline his selection approach, there is a steely conviction about how to assess the market.
As a fund selector, he believes in active management with clear sustainability themes, and desires for strategies to deviate from indexes as much as possible. In his view, it is the only way to beat a benchmark and add alpha.
Summarising his investment approach, which he has learned from 38 years’ experience in the industry, he says: “High active share is my motto.”
His outlook on Sweden’s investment climate is likely to remain highly positive, due to its low interest rates, its strong economy, and reliance on exports which encourages equity investing and active management. He also thinks the global macroeconomic picture is very attractive. The record-low interest rate could make interest rates make equity valuations appear increasingly attractive to yield-seeking investors. He forecasts that there will be a serious dispersion in the valuations of equities, which will benefit selectors and give active managers a clear advantage over passive products.
Meanwhile, monetary stimulus will to continue to flood into developed markets, meaning that there are few real headwinds to sustained strong earnings growth. He also anticipates that President Biden’s electoral success in the US to boost small and mid-cap ESG strategies, due to emphasis his administration is placing on clean energy and inclusive strategies.
This perspective is showcased in his international plans.
As it stands, Mr Rock is invested into four international funds, with his total list totting up to eight products. The funds under his selection include Baillie Gifford Positive Change, Pictet Human, Brown Advisory US Sustainable Growth, and BlackRock Next Generation Technology. As well as fulfilling his desires for high active share, all four funds are based on 100 percent sustainable growth with full compliance with ESG factors.
Commenting on the strategies, he noted that they coalesced with his support for sustainability. He believes that sustainability and impact themes will continue to be key factors driving equity returns. Simply put, Mr Rock expects higher margins for companies with a clear target on how to achieve a positive impact.
Explaining how this was represented in his selected funds, he says: “Bailey Gifford and Pictet are as close as you can get to impact investing. They are inclusive, instead of exclusive. They own future stocks and that's why they didn't drop as much as ordinary equity funds in February and March, and recovered a lot better than ordinary equity funds.”
There are also factors that result in Mr Rock dismissing prospective strategies. He is contrarian when it comes to emerging markets, and also avoids funds in countries governed by non-democratic systems.
Explaining his position, Mr Rock argues: “I have always stayed out of Russia, China, Turkey, and the like with autocrats or dictators, because with these types of politicians, you never know from one day to another what will happen. So, I only invest in democracies, and the Western world. I think it is risky enough, and it's rewarding enough with being invested in countries that have 100 percent transparency. In countries like Russia and China, with the ‘G’ in ESG you never know with Chinese stake in Huawei etc.”
He concludes: “So, I only invest in Europe and America, even if the global fund might be invested somewhat in Asia. That could be true, but it's just a fraction.”
When questioned about his performance, Mr Rock acknowledges his confidence could sound like hubris or bragging. However, since 2015, his Swedish funds have all performed above the index, despite having an increased level of volatility in the stock selections, while the performance of his international picks have also performed strongly since he strated measuring them in the past two years.
He explains: “Since 2019, my performance, in Swedish kroner, with these four funds has been 34 percent, while the Morgan Stanley Capital Index has gone up 16.5 percent. So, this is why I constantly always stay out of index related funds or ETFs.”
Given that SharingAlpha rate their funds against a similar ETF, this record explains his high rating on the site.
This calm confidence in a strategy built with such conviction might suggest a level of intransigence or ideology in his approach, however, fund managers can rest assured that he will always be on the lookout for new products that catch his eye.
“I will always have an observation list with new funds,” he says.