Cracking the Code: How Vinva finds opportunities others can’t see

Systematic and quantitative investment firms have made their names on the international investing stage. Powered by leading minds, sophisticated models, and immense computing power, these strategies aim to exploit market inefficiencies that the average investor simply can’t see, let alone act upon.

Founded in 2010 by Morry Waked, Vinva Investment Management is an Australian-grown systematic investment firm that has delivered both impressive performance and strong growth. Vinva’s assets under management have grown to over $24 billion, with the majority of these funds managed on behalf of large institutional investors.

In 2024, Vinva signed an agreement with Magellan to distribute the Vinva Global Equity Fund and the Vinva Global Alpha Extension Fund to wholesale and retail investors.

Both strategies aim to outperform broad global equity market indices and are built on Vinva’s established and proven investment process and philosophy. While there’s still some mystique surrounding systematic investing, Waked says the approach is grounded in ‘sensibility’ - with a core focus on removing emotion from the investment decision-making process.

In this Fund in Focus, Waked provides an overview of the Vinva team, their investment philosophy, and an example of how their process uncovered an opportunity in global luxury brand business Kering.

Watch the video above or read the edited transcript below to learn more.

Can you introduce Vinva?

Vinva is a global equity investment manager founded here in Australia in 2010, but the genesis of the core members of the team date back almost three decades now, so a very experienced team. 

The majority of our equity in the firm is owned by our employees, so that's a very strong statement. 

We have a very strong alignment of interest with our clients, and we remain independent and autonomous in what we do. Our focus is purely on investment performance for our clients.

Can you tell me about the Vinva team?

Most importantly, it's all about hiring the right people. Like any investment manager, our investment performance is a function of the investment talent and professionals that we have in the organisation. 

The most important decision we make as a firm is hiring people across the firm and, particularly, the investment team. It's all about hiring people that are experienced, that have a passion for the investment markets.

We're blessed with a really high calibre investment team, and also across the whole firm, because they're people that come up with the investment ideas. They're people that drive the passion for success and to meet or exceed our client's objectives, so we're very fortunate to have a wonderful team.

Can you tell me a bit about the investment philosophy and the objective of the funds that you've got?

Firstly, we're a systematic investment manager. By systematic, we mean we take a range of investment ideas all grounded in sensibility, that's the most important thing. We bring them all together and put them into an investment process, that's unemotional. We're objective in our decision-making. We're basically trying to get the best of all worlds into our investment process.

There's a range of ideas that we look at. Some being fundamental, understanding the fundamentals of a company, the cash flow, the earnings expectations, margin compression expansion, the quality and the strength of the balance sheet, and some certain trends and accounting practises that we see.

Then we take into account some macro things where we look at companies around the world and link them across various dimensions.

We also look at some centre and behaviour, so a range of different sort of insights and put them together in a single investment process that removes emotion and gives us discipline.

Our investment philosophy is really based on what we call the fundamental law of active management. That's really all about delivering ultimately consistent outperformance to our clients, and that's measured in terms of a return-to-risk ratio. We typically have strategies that deliver high return-to-risk ratios. To be able to do that, you've got to do three things very well.

One is you have to have skill. Clearly, you need to be able to differentiate future winners from future losers, being able to rank and forecast stock returns around the globe.

The second thing we like it to do is have breadth. There's no point having a great investment idea if you can only implement across a couple of industries or a couple of markets around the world. We're looking for ideas that are applicable across many, many markets all around the world.

The third component is really around portfolio construction. I'm a big believer that portfolio construction is where the game is won and lost. How do you take return forecasts or stock ranking models and turn them into portfolio holdings? It's not that simple. You don't just buy your best-ranked stocks. From our perspective, you've got to take into account risk. You've got to take into account liquidity and transaction costs. That efficiency component is really, I believe, an important part and a real differentiator for Vinva in terms of how we put our portfolios together for clients.

Can you give me a bit more detail on the portfolios for the long-only fund and the Alpha Extension Fund?

Yes. We've got two funds to talk about today. One is the Vinva Global Equity Fund, which is what we refer to as a long-only strategy. All our positions are positive. We either own a stock or don't own it.

The other one is the Vinva Global Alpha Extension Strategy, where we have long positions as stocks that we own. We also are able to create negative positions in companies that we have a negative view on. That's a distinction between those two strategies.

The investment philosophy, the investment process to portfolio construction approach, is almost identical between the two. The difference being with the Alpha Extension, we remove one of the constraints that allows us to hold negative positions in a stock. The beauty of being able to do that, it really is a more efficient strategy. It opens up more opportunities and more avenues to add value and effectively take advantage of negative insights that we may have in companies around the world, in particular, mid and small-cap companies where it's hard to get those sort of negative views embedded in a long-only portfolio.

What's an example of an opportunity you've identified?

I bought a slide with us today, and it should be up on the screen for our viewers to see. The company is Kering. It's a French luxury brand. It's got brands like Yves Saint Laurent, Alexander McQueen, Gucci, so well-known global brands in the luxury brand market. That's a stock. If you look back over the past 12 months or so, it's been a very strong contributor to our Global Alpha Extension Strategy. It's been one of our better contributors in terms of outperformance.

If you look at that stock, it's weight in the global equity benchmarks around the world is about 0.02%, very, very small. If you are running a long-only strategy as we do, we don't own it in our long-only funds. But in our Alpha Extension Strategy, we can actually take advantage of our negative view on that company and create a short position. 

On average, we've been short close to about 1% over the past 12 to 18 months, and that's been a very rewarding strategy for us.

If you look at Kering, and the slide will have a range of bubbles on them, the majority of the insights that we look at don't look very positive for Kering. On a trailing cash flow basis, it's generated some good cash flow in the past. That's a positive. But if you look at margins going forward, the earnings trends, if you look at things like consumer sentiment, if you look at what's happening in global supply chain and also the luxury market globally, where it's a pivotal point for those sort of companies and other trends that we're looking at, it's pretty negative on all those dimensions.

It's all those things in aggregate that have given us a negative return forecast or negative view on Kering, and we're able to take advantage of that negative view in our Alpha Extension Strategy.

What are the benchmarks for these funds?

They're both benchmarked to global equity benchmarks. For example, the Global Alpha Equity Fund is benchmarked to the MSCI ACWI Countries Universe ex Australia. The Alpha Extension Strategy is benchmarked to the MSCI World Developed Market Index ex Australia and ex controversial weapons, and tobacco, and so forth, but they are both broad-based equity strategies and we're trying to outperform those benchmarks consistently over time.

What are some of the risks and how do you manage them?

There's two types of risk. One is what we call total risk. Whenever anyone makes a decision to invest in equity markets, what comes with that is equity risk. Equity markets can be volatile from time to time, and certainly, as I'm sure everyone out there has experienced over the past couple of months, there's been a lot more volatility in equity markets over the past few months than what we saw probably last year. That's one part of risk. It's very difficult for us to control equity risk. That's like the tide of the ocean. We're a cork in the ocean and the tide will go up and down, we can't control that.

What we can control is what we refer to as active risk. What risks are we taking relative to the benchmark? What overweights and underweights? What active decisions are we taking? That's where we look at risk and what we try to control. 

Our portfolio really is a pure stock selection strategy, which is probably the best way I can describe it. If you look at our global equity strategies, we don't take large country bets, we don't take large industry bets. All strategies that are designed to take over and underweight positions within industry, within countries around the world, really are all about pure stock picking.

Vinva is in partnership with Magellan, why are you bringing these funds to a broader audience?

Vinva hasn’t really had a brand in the retail or wholesale markets. Our number one objective as an organisation is investment performance. We're not here for the limelight. We're not here to be in the news. We're not here to market ourselves. That's not who we are as an organisation. Our number one priority is to deliver investment outperformance to our clients.

In August last year, we did a partnership, a distribution partnership. It's purely a distribution partnership with Magellan, so we maintain our focus on investment management, we retain our independence. But Magellan, they have a wonderful distribution network, and ability, and access to the retail wholesale market, so we've partnered with them, because we think it's important that the retail-wholesale market has access to our quality investment products.

Our partnership with Magellan allows us to bring those products that were previously not available to the wholesale market. Now, with our partnership with Magellan, they're now available to investors in the wholesale market, and we think that's a great positive.