Before discussing investment ideas and products, Paul Lacroix, Head of Products at Ossiam (Natixis), pauses briefly to explain the benefits of quantitative strategies, through which “we avoid human biases.” Throughout our interview, he emphasizes the product innovation offered by the firm and highlights the advantages brought by being part of Natixis’ multi-boutique environment. In the current market climate, their equity portfolios favor the communications services, healthcare, consumer discretionary, and consumer staples sectors, while remaining cautious regarding technology and energy due to the elevated prices of their constituents.
What are the advantages of being a specialist in such a competitive environment?
We founded Ossiam in 2009, after the crisis. The objective was to have an asset manager focused on quantitative strategies. We create models and then follow them rigorously across our strategies. The advantage of a quantitative strategy is that it allows risk management and all liquidity tools to be implemented directly within the strategy itself, avoiding human biases that can sometimes lead to buying or selling stocks based on a portfolio manager’s opinion—which can be either positive or negative. Thanks to the work done prior to launching a product, we know precisely what type of risk we anticipate. Furthermore, we reduce human biases to a certain extent once the product is launched. So, yes, the environment is highly competitive for everyone, as well as very demanding. The majority of our assets are currently in equity products.
And what does working within Natixis’ multi-boutique structure provide you?
It is very useful for us. When we founded the firm, we decided to focus on quantitative investments and ETFs—a sector that we know is not yet as widespread in Spain as in other countries. Due to this setup, we needed a large firm to raise capital and distribute our products across different countries. Natixis helps us with global distribution. Having a specialist is very helpful for us. When we travel to Latin America, we have someone there who knows our products as well as the client, which is important, giving us a specialist worldwide.
Are you present in Latin America?
Yes, we visit sometimes. We regularly visit Peru, Chile, and Colombia, in addition to Mexico, where there are large institutional investors who buy UCITS funds, especially ETFs. It is an important country for us.
And what feedback do you receive from Latin American investors regarding UCITS products?
They appreciate the security and the regulatory framework backing them. They know exactly what to expect from a UCITS product. They are already familiar with the diversification limits, as well as the risk management. The global reputation of UCITS is very strong. For them, investing in UCITS funds represents, in a way, a safety net.
How does your flagship strategy, the Ossiam Shiller Barclays CAPE US Sector Value, operate?
It all starts with Professor Robert J. Shiller, winner of the Nobel Prize in Economics in 2013. In 2012, right before receiving the award, Shiller created an index alongside Barclays called the Shiller Barclays CAPE US Sector Value Index. Its goal was to utilize part of the research Professor Shiller conducted in the 1980s on the CAPE ratio. The CAPE is like a price-to-earnings ratio, but applied over a 10-year period instead of just one year. It allows for evaluating the valuation of a benchmark index, such as the S&P 500, but also functions at a sector level. That is what we use in the strategy. In short, it selects four U.S. sectors every month based on their valuation and momentum that are undervalued relative to their long-term average. The core idea is mean reversion, meaning that a very cheap sector will become more expensive as prices rise, and vice versa. It is a systematic strategy that repeats every month.
And which are currently the cheapest sectors?
In August, the U.S. Shiller portfolio included materials, healthcare, consumer discretionary, and consumer staples. The communications services sector was the cheapest in the U.S. market in August, so theoretically we could have included it, but we excluded it due to its weak momentum. As for the most expensive sectors, the leaders in this category were industrials and technology. We have not invested in technology since mid-2023, which turned out to be a bit premature. However, in the past we held positions in the tech sector and benefited from it for a long time, until it became too expensive for the model. We will continue to rotate across sectors over time following our systematic model. One of the main differences compared to traditional value investing is that we rely on relative valuation: we start by comparing a sector’s current valuation against its own long-term valuation, which allows us to compare different sectors against one another.
Why did you launch an ETF version?
There are several reasons. First, we launched the ETF in 2015, just over 10 years ago. This vehicle offers many advantages, including transparency and liquidity. Since it is a quantitative strategy, we did not want it to be a black box that we could alter. We wanted it to be fully quantitative, so it tracks an index, and fully transparent. This means that with the ETF, we publish the fund’s holdings daily. Thus, our clients know exactly what we are going to invest in and have complete transparency. Additionally, they have liquidity, as they can sell their ETF position even within the same day if they wish.
So is it an active ETF?
The distinction between active and passive ETFs is always a good question. Clients find it difficult to grasp. By law, if you are replicating an index—even an extremely complex one—it is a passive ETF. Regulation defines this ETF as passive because it tracks an index. However, the benchmark in question is quite different from the S&P 500. Consequently, tracking error exists: sometimes it outperforms the index, and sometimes it does not. So, in a sense, it acts like an active fund. Therefore, a gap exists between regulatory definitions (defining them as passive) and client perceptions (viewing them as somewhat more active, with the goal of beating the S&P 500).
Another of your flagship products is Serenity Ossiam. What does it consist of?
It is a strategy similar to a money market fund that aims to offer returns above money market rates without the credit and duration risks inherent in many traditional money market solutions. To achieve this, the fund uses synthetic replication and enters into total return swaps with leading banking counterparties. The fund holds a portfolio of assets, generally U.S. equities, but has no economic exposure to them, as their total return (positive or negative) is transferred daily to the investment bank via the swap. In exchange, the bank pays the fund the money market rate plus a spread. For corporations and large institutional investors, this represents a new way to generate yield on cash. Another advantage of these funds is their complete liquidity, with no entry or exit fees.
And do you plan to launch more ETFs?
Yes. We intend to launch many exchange-traded funds and mutual funds. We like to be innovative.
How have investors reacted to these types of products? Do they like ETFs in general?
At the end of the day, an ETF is still an investment fund. It is a fund where, beyond traditional investing, you can also buy or sell on an exchange. Therefore, for investors, there are only advantages. Provided there is no tax disadvantage—which we know differs slightly in Spain, though in other countries it is the same or even easier to access via online platforms. For instance, in Italy and Germany, ETFs are growing at a rapid pace. Instead of launching new investment funds, managers are issuing new ETFs.
And what is your take on the new account set to be approved in the European Union to encourage savers to become investors?
I see it as a good step in the right direction, but there remains a major need for financial education in general, depending on the country. How we manage retirement in Europe is very different from the United States. In the U.S., almost everyone has their own brokerage account, invests in equities, and understands how they work. In Europe, that is true in some countries, but not in others. Therefore, a significant need for education exists, and that role belongs not only to regulators, but also to asset managers, who must provide guidance and ensure that everyone understands the product.
