Cedric Le Berre, senior analyst and investment specialist at UBP, speaks with Piyasi Mitra about fund selection amid the rise of passive investing, AI and shifting fixed income strategies.
As passive investing, technological advancements, and shifting market dynamics reshape the industry, fund selectors must refine their approach to identifying top-tier managers and strategies according to Cedric Le Berre, fund selector and portfolio manager at Geneva-headquartered private bank and wealth management firm Union Bancaire Privée (UBP).
“Balancing art and science”
Fund selection is not just about picking top-performing managers — it is “a combination of art and science”, according to Le Berre.
At UBP, the approach integrates quantitative tools with qualitative assessments to ensure that selected managers consistently deliver strong results over time. “A good manager isn’t a one-man show but a blend of key elements. In the team, we call it the ecosystem,” says Le Berre.
He also adds that a strong ecosystem consists of multiple layers: the firm’s ownership structure, financial health, team dynamics, incentives and alignment with the fund’s objectives.
Fund evaluation looks at idea generation, strategy execution, and performance consistency. “Within the team, we’ve met a lot of good stock pickers in our respective careers, but a good portfolio manager with a comprehensive toolbox is a much scarcer resource,” shares Le Berre.
Once UBP’s fund selection team identifies a promising manager, they challenge each other internally to ensure analysis and alignment with investment principles, he adds.
Blending passive and active
Passive fund investment in Europe has risen from 20% to 25% in three years, aligning with US trends where passive investing is even more dominant, Le Berre notes.
He highlights the rise of active ETFs, stating that “in the recent past, a new family of ETFs has emerged: active ETFs,” which now make up 3% of total ETF assets in Europe.
Le Berre believes that “technology has enabled this type of investment to find its place in portfolios, bringing all the advantages of the ETF world, such as cost efficiency, continuous liquidity, accessibility on market exchanges and intra-day pricing.”
Unlike passive ETFs, which have existed since the 1990s, active ETFs “also aim to outperform the market,” representing what he described as “a quantum leap” in ETF evolution.
Le Berre adds: ‘We now include active and passive ETFs in our recommendations. We’ve added them gradually and integrated them into mandates to assess their impact on broad allocations.”
AI meets fund selection
Advancements in AI and data analytics are transforming fund selection and portfolio management. More managers are moving beyond traditional portfolio management, adopting AI-driven approaches or leveraging data for quantitative strategies. Many managers are moving away from traditional portfolio construction and incorporating AI-driven and quantitative strategies into their decision-making processes.
“These approaches may come with a wealth of advantages, such as exposure to selected factors that bring powerful performance engines,” Le Berre shares.
He adds that data-driven managers are often less constrained by traditional investment universes and can capitalise on diversified value chains.
Integrating quantitative techniques with fundamental investing boosts efficiency and extends investment horizons but demands expertise in performance patterns. “An allocator needs to be able to understand performance patterns that provide an attractive risk-reward profile,” adds Le Berre, highlighting the need for expertise in navigating such complex strategies.
“Unlike passive ETFs, which have existed since the 1990s, active ETFs also aim to outperform the market, representing a quantum leap in ETF evolution.”
Managing information overload
With thousands of funds flooding the market, fund selectors face the challenge of managing information overload. However, Le Berre sees this as an opportunity rather than a burden.
“Data access has been improving over the years, and so have the tools to analyse such data,” he says. “Selecting funds – or any other instrument – should never be isolated from the overall investment strategy of any financial institution.”
UBP’s goal is to provide a conviction-based palette of funds that can accommodate any market environment or strategic objective. However, according to Le Berre: “It is paramount to have a good understanding of the asset class and, if not, a firm market opinion or at least a solid awareness of the market environment to be able to challenge the manager.”
UBP’s global investment committee oversees asset allocation, guiding investment strategy across asset classes based on risk profiles and market analysis. “When our global investment committee articulates a market view requiring a specific strategy, having internal resources allows us to quickly engage with relevant managers and onboard the right solutions: it’s crucial to use the right tool for the right job,” says Le Berre.
“Diversified bond portfolio”
With active ETFs continuing to gain momentum, fixed income core allocation is emerging as a key focus for European investors. Le Berre describes it as a “structural component within a diversified bond portfolio”, emphasising the importance of strategies that “deliver superior income relative to the traditional investment-grade market without taking more default rate risk, while still maintaining an investment-grade rating.”
He explains that this level of performance requires diversified managers with a benchmark-agnostic approach, ensuring broad exposure across major income segments of credit markets. In the post-pandemic era of higher inflation and elevated interest rates, Le Berre sees value in strategies that capitalise on higher income opportunities, supported by active management of interest rate duration and issuer selection.
To capitalise on this environment, UBP is focusing on strategies that actively manage interest rate duration and issuer selection, helping investors optimise returns in a shifting market.