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Bruised bears stick to guns after punishing 2017

Bearish fund managers have been punished hard by markets riding at all-time highs. But fund managers at Sanditon aren't shifting their stance.

 
Bruised bears stick to guns after punishing 2017
 

Against the backdrop of buoyant markets reaching all-time highs, few fund groups have endured as difficult a time as Sanditon, the UK and European equity specialists with a bearish view on markets.

Fund managers Tim Russell and Chris Rice launched their fund group in May 2014, managing a coup a few months later by luring Julie Dean, former manager of the Schroder UK Opportunities  fund and Schroder UK Growth (SDU ) investment trust.

But their investment offering, comprising an investment trust and four open-ended funds, has endured a rocky start to life, with the managers' bearish disposition punished by rallying markets. 

Last year was particularly punishing, with their funds rooted to the bottom of the end-of-year fund performance tables.

Investors in its 'absolute return' funds have been the worst hit. These sorts of funds aim to deliver a positive return to investors in any market environment, and unlike most funds are able to 'short' shares, or profit from them falling.

The £23.4 million TM Sanditon UK Select fund suffered the heaviest loss of any fund in this sector last year, losing 12.6%. Close behind was the £115.1 million TM Sanditon European Select fund, down 6.5%. That was against the backdrop of a UK market that rallied around 10% and European indices which rose 18%.

For both funds, their short positions have been the major problem. Since its launch in the summer of 2014, the European Select fund's 'long' share investments have actually delivered a positive return, of 21%, according to the latest factsheet.

But that has been offset by a 31% loss from its short positions, leaving the fund down 15% since launch at the end of November.

It's the same story with the UK Select fund, where the 'long' positions have delivered 10% but the short positions have lost the portfolio 14%. The fund was down 9.5% since launch at the end of November.

Its Sanditon (SIT ) investment trust has suffered the same fate, with short losses eating away at gains from long positions, and the shares down 15% since launch in the summer of 2014.

But the problems don't stop there. Of its 'long-only' funds, the £324 million TM Sanditon European has at least delivered a positive return since its launch in September 2014, but only three other European funds have delivered less than its 36%.

The £54.9 million TM Sanditon UK fund has meanwhile delivered just 2.9% since its summer 2015 launch. Only two other UK All Companies funds have fared worse over the period.

While those funds haven't been hampered by a shorting approach that carries pitfalls in a broadly rising market, their defensive positioning has seen them lag rivals.

For Rice, manager of the European fund, that is expressed by preferring defensive shares, which make up nearly two-thirds of the fund, and with a high cash holding of 12% of the fund.

Sanditon UK manager Dean has meanwhile homed in on defensive value shares, which account for more than half of the portfolio, an area of the market that has been largely left behind by the rally.

In his latest update to investors, Sanditon UK Select manager Russell admitted that 2017 had 'obviously been a very disappointing year for our strategy'.

'We have been bearish in a market which has risen almost continuously since the referendum in the summer of 2016, and our portfolio shape has concomitantly been wrong even if consistent with our expectation of a falling market,' he said.

But Russell is sticking to his guns. 'Whilst the cycle has been extended by illiberal doses of quantitative easing, leaving investors chasing risk assets at very high ratings, we have not changed our view that the aftermath of super loose monetary policy is likely to be a rapid and probably prolonged collapse,' he said.

Rice, manager of the European and European Select funds, is likewise unswayed from his bearish stance while 'there is strong evidence of speculative excess across all asset markets'.

'Investors are increasingly relying upon the continuation of price momentum trades at the expense of rationality,' he said.

'And of course like any bubble, it relies heavily on insiders convincing the uninitiated to abandon normal metrics of asset valuation in order to join in the trade.'

 

3 comments so far. Why not have your say?

ascend

Jan 05, 2018 at 22:07

SHORT POSITIONS ARE ONLY FOR GAMBLERS/HEDGE FUNDS, Sanditon is neither, SO WHY?

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chris dennistoun

Jan 05, 2018 at 23:26

If you want to hedge why not use put warrants and options? These managers are obviously out of their depth,promoted to a level of incompetence, probably go for overcrowded short trades that given half a chance get squeezed mercilessly by the rest of the market.If you're going to run an absolute fund, at least do it efficiently and profitably, - isn't that what you're supposed to get your

2 and 20 for?

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Murdo McSponge

Jan 07, 2018 at 09:45

I'm not a profesional (Which, I guess, means I shouldn't be enrolled in CityWire), but my question is: How the heck can ordinary punters tell which of you City blokes can be relied on?

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