HCP Black Strategy
The Multi-Strategy Multi-Style Fund HCP Black aims for the best riskadjusted return thru active diversification. In the process we cannot achieve the level of diversification between asset classes brought forward by Markowitz, where all world securities, including wine collections and stamp collections, are added to the diversified portfolio.
Instead of trying to buy as many assets within as many asset classes as possible, or analyzing historical correlation between securities, we focus on analyzing the fundamentals of each investment, to see how much it is related to the other investments we have. This active diversification that starts from the fundamentals should result in high return compared to risk.
HCP Black Allocation History
HCP Black Monthly performance
The returns are net returns (returns after fees)
HCP Black Performance Chart
The returns are net returns (returns after fees)
HCP Black Portfolio Manager
I became interested in the stock markets at the end of 1980s. The first 5000 pages of economic texts I read were all the miscellaneous material I was able to find at my local library. Later, studying for matriculation exams was a secondary priority, because I felt that I should read through the material for the application tests for Hanken and Helsinki School of Economics, in order to figure out which school would give me better chances to get a job working in the markets.
Studies at Hanken gave me a solid platform and the first semester felt as if I was given secret information, so useful it was. I didn’t spend too much time at university before graduation. This was because it was a habit of mine to read through the course material already before the course had begun. Alongside investing and finance books I read other literature, such as strategy classics from Sun Tzu, Machiavelli and Carl von Clausewitz. Strategy is key.
During studies I got an opportunity to invest in stocks using the bank’s Telnet-network. Using the Telnet feed I also updated lists of historical stock prices into software I had ordered in the mail from America.
I started my career as a Sales Trader and became especially interested in Specialized Equities and the actual investing service offering itself. I understood that investing is so much more than only stocks and bonds. Often, the juiciest steak can be found where one has to do a bit more work than usually. I found out that services that are called asset-management or portofio management, could have huge differences in the knowledge and capabilities of investing money.
The market crash in my early youth in the late 80s after the golden age of yuppies and the hectic end of the 90s escalating in the IT-bubble in the early 2000s, have all influenced the way I view the markets today. I believe that the essence in understanding the market is in fact that many of the dynamics or rules of the market are constant in time. Which ones dominate the outcome at each time is what changes over time. The market is not only a massive amount of data, but a product of rules and understanding the rules together with the data can give one a good enough proxy of the state and nature of the market. In the end, from a huge amount of rules, only a handful typically dominates at one time.
Experience and different experiences matter, because there exists a lot of investing wisdom that cannot be written as a hypothesis, which could be tested and proven to be right and written as a theory. The definition of a theory is so rigid that for example housing crashes or bond market crashes don’t occur frequently enough for theories linked to them to be reliably tested. My investment strategy is based on the wisdom that a true diversification will eventually offer a high return relative to risk. This occurs only when investments are diversified to stocks, bonds, real estate, insurance-linked securities and alternative investments. Only time will tell, how much excess return these investments into uncorrelated (and less correlated) investments that improve buying power in recessions will generate. It cannot be tested accurately beforehand. The idea of true diversification has been used globally with successful results, investing in e.g. U.S. Treasuries, gold and Swiss Franc. This can be proven a posteriori, but is it practically the most efficient diversification anymore? Understanding importance of diversification and its mechanisms gives an opportunity to improve diversification even though it might not be tested and written as a theory.
I barely have any resistance to change, which makes it easier to have an objective approach to portfolios allocation changes. Excess returns can be achieved from all different kind of sources when one learns to keep one’s eyes open. For example, the HCP Focus strategy’s stocks are mainly the kind of stocks I had considered to be overvalued, because I did not understand the companies’ 25-year trend. Similarly, the small cap companies in the HCP Quant strategy don’t allow large players to invest in them due to lack of liquidity and only a few smaller investors have the same kind of knowhow that we do to perform the extensive fundamental analysis paralel to several companies. Cyclicality, which is the Achilles’ heel of HCP Quant and HCP Focus, is balanced by managing HCP Black so that it has enough uncorrelated investments like insurance-linked securities.
Finally, to achieve excess returns, my key role at HCP is to facilitate our team in a way that investing research can develop inside the company. My long background in investing and my intensive approach to investing and its dynamics result in a more mature understanding of investing. If a stock price is increasing in its domestic currency, it is not worth much if people are losing their trust in the currency’s ability to maintain its purchasing power. A new headline about a natural disaster doesn’t increase the probability of the next natural disaster, but it will most likely increases the return on carrying insurance risk in the future. Even the smallest return is valuable, especially if it is uncorrelated with the market, because it enables a safer investing in equities, which have a highest return potential. The most valuable asset of an investment professional is the freedom to work in peace, and from my part, I make sure that the best people in our team can do what they are best at in the market. The result of this is a successful customer and therefore successful wealth management.
HCP Black Documents and Subscription
- Key Investor Information Document (KIID) (PDF)
- Subscription form (PDF)
- Redemption form (PDF)
- By-laws of Special common fund HCP Black (PDF)
- FATCA information form (PDF)
- FATCA information form for companies (PDF)
HCP Black Market update
Stay up to date of HCP Black by following the Portfolio Manager Tommi Kemppainen’s twitter and blog feeds.