OREANDA-NEWS. Fitch Ratings has affirmed Parvest Diversified Dynamic's 'Strong' Fund Quality Rating. The fund is Luxembourg-domiciled and managed by THEAM, a member of BNP Paribas Investment Partners (BNPP IP).

KEY RATING DRIVERS
Fund Presentation
Parvest Diversified Dynamic is a sub-fund of the Parvest Luxembourg SICAV with EUR191m of assets at end-February 2015. Launched in 1997, the fund was managed under a traditional balanced strategy until December 2009, when it switched to the current flexible multi-asset and quantitative model-driven investment approach. The fund targets 7.5% volatility with a stable risk budget allocation across asset classes while keeping leverage below 150%.

Investment Process
The fund's central assumption is that volatility is a robust indicator of market direction. Its capital-weighted asset exposure is adjusted according to pre-defined risk allocation targets assets' volatility so that the fund's overall volatility remains broadly stable. The investment universe remains unchanged in its core part but has been opened to more diversifying assets under tight constraints.

Thorough quantitative research and back-testing underpins the model and its recent adjustments. These adjustments introduced greater flexibility in asset selection and more reactive portfolio construction, making the fund less vulnerable to the risk of prolonged unstable model assumptions, in Fitch's view.

Portfolio construction closely follows rebalancing signals from a proprietary quantitative model. This has been supplemented since mid-2014 by discretionary investment decisions with a small risk budget allocation, aiming at making a greater use of option strategies and global macro views from the investment team. The fund is typically invested in a low number of securities, primarily exchange-traded funds (ETFs) and futures, covering global equity, fixed income, commodities and real estate markets. Put and call options may also be modestly used. Constraints on leverage at portfolio and asset class levels provide effective risk control, preventing excessive exposure to any one asset class.

Resources
The fund is managed by two experienced absolute return portfolio managers (PM). The lead PM has co-managed the fund since the implementation of the model-driven strategy and took over the lead role in July 2014 following the reorganisation of THEAM investment teams. BNPP IP's centralised financial engineering department provides quantitative research, and quantitative model development, back-testing and maintenance that underpin the portfolio's strategy. The operational and IT environment built around Tracker and Excel add-ons provides for efficient workflow, matching the needs of the fund, and is scalable and well-integrated.

Track Record
The fund has returned 10.9% and 22.8% over one and three years, respectively, at end-February, achieving a Lipper Leader score of four over three and five years. It has behaved, on average, in line with its volatility objective and delivered lower drawdowns (peak to trough value declines) and better Sharpe ratios (risk-adjusted performance measure) than traditional balanced strategies and most flexible multi-asset peers.

Asset Manager
THEAM, the fund manager, was established in 2011 and is ultimately wholly-owned by BNP Paribas. It is BNPP IP's expert in indexed, protection and model-driven investments. It has 118 staff, EUR41bn of assets, its own sales force, risk control and operations (for more information on BNPP IP and THEAM, see Fitch's asset manager rating report dated 15 October 2014 at www.fitchratings.com).

RATING SENSITIVITIES
The rating may be sensitive to material changes in the investment or operational processes, or in resources dedicated to the fund. A material adverse deviation from Fitch's guidelines for any key rating drivers could result in a downgrade. For example, this may be manifested in significant structural deterioration in the fund's performance or a material deviation from the volatility objective of 7.5%. Key person risk is limited for this fund, but model risk exists. Model error or inability to adapt to changing market conditions may also put pressure on the rating.

Fitch's Fund Quality Ratings combine Fitch's experience in qualitative fund analysis with rankings and performance data from Lipper, a Thomson Reuters company. Fitch's Fund Quality Ratings offer an independent, forward-looking assessment of a fund's key performance and risk attributes and consistency of longer-term returns, relative to peer group or benchmarks. The ratings focus on the fund manager's investment process, key fund performance drivers, risk management, and the quality of the fund's operational infrastructure.