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Citywire Selection: our top 11 absolute return funds
by Matthew Goodburn on Nov 01, 2012 at 11:41
Scroll through our gallery to reveal Citywire Selection's 11 preferred absolute return funds.
The fund continues to deliver positive returns from its mix of long and short ideas that look for decorrelated ideas across currencies, interest rates, commodities, equities and bonds. Recent trades also look to exploit the difference in volatility between certain equity indices. Assets have swelled to over £13 billion but the managers are confident their investment style will continue to be effective and that recent departures from the team will have little impact on what has been strong long term performance.
The fund has returned 36.4%, matching the 36.4% returned by the Average Manager - Citywire Alt UCITS Multi Strategy Sector.
The woes of European equities have been hard to escape, even for Ajay Gambhir. The manager uses short positions in stocks or sectors to profit from market falls, and with slowing global growth he is continuing to short mining and construction sectors. Gambhir is positive on global mega cap companies offering attractive dividends in areas such as telecoms, utilities and the oil majors. The fund has outperformed the European equity index since launch in July 2010, although volatility has been higher than anticipated so we are closely monitoring performance.
Since launch in December 2010 the fund has returned -2.7% compared to 4.5% by the Average Manager - Citywire Alt UCITS Long/Short Equity Sector. Ajay Gambhir has notably been impacted in his long book by value stocks he believes have been overlooked by the market. This has led to more volatility in the fund than we might have anticipated but a recent change in sentiment on depressed European equities could help reward his strategy.
Ruffer Investment Company – Steve Russell and Hamish Baillie
The multi asset approach employed by Steve Russell and Hamish Baillie is one of the standout performers over the last decade, making positive returns through market downturns. It has been resilient in recent times but slightly held back by 22% exposure to Japanese equities. They back their position here to come through, and also hold nearly a quarter of the fund in index linked bonds while international blue chip equities are also backed. There is an alternative way to access this strategy through the CF Ruffer Total Return fund.
The trust has returned 82.8% compared to 16.3% by the Average Manager - Citywire Mixed Asset Absolute Return Sector.
The fund returned 5.5% this year up to the end of September with Iain Stewart’s defensive stance and large allocation to gold turning round earlier underperformance. The fund is still in defensive mode with around 17% in cash. Holdings are spread across blue chip equities, bonds and currency positions to add diversification. After five consecutive years of positive performance, 2011 saw the fund post a slight dip of 0.4% but the fund also has the attraction of a 3% yield.
Experienced manager Philip Gibbs has reaped the rewards of a large position that shorts the Euro. He is still in defensive mode, thinking there is too much debt in the West and weak data from China which highlights a broad slowdown in global growth. There is very little equity exposure in the portfolio and Gibbs is using short positions to express some of his views. Gibbs has the best track record of over 1800 managers tracked by Citywire. After a slow start following the fund’s launch in December 2009, performance has started to come through and the fund can serve as an attractive diversifier.
The fund has returned 3.1% since launch in January 2010 compared to 14.8% by the Average Manager - Citywire Alt UCITS Multi Strategy Sector.
Insight Absolute UK Equity Market Neutral – Andrew Cawker, David Headland, Richard Howarth & Iain Brown
This extremely low volatility fund looks to make steady incremental returns through pair trades, aiming to hedge out stock market performance with gains made through stock selection and tight risk controls. If correlation between stocks starts to fall, ideas that look to make the most of these moves should help further modest steady gains.
Over five years to the end of September the fund has returned 10.1% compared to 9.8% by the Average Manager - Citywire Alt UCITS Market Neutral Sector return of 9.8%.
Steve Cordell returned 6.5% in his first year after taking on the fund in May 2011 while the FTSE All Share fell 8% during this time. He has proved adept at rotating long and short positions in volatile markets and at not getting caught out by rapid swings. Cordell also uses ideas in European equities to widen his opportunity set and is keeping an eye on the technology sector as an area to short following a period of strong returns.
Over five years to the end of September the fund has posted a return of 11.1% against the benchmark’s 23.2% but since Cordell became lead manager the fund has returned 9.4% compared to the Average Manager - Citywire Alt UCITS Long/Short Equity Sector return of -0.1%.
This investment trust holds a range of funds run by hedge fund giant BlueCrest Capital. These aim to profit from movements in market trends, interest rates, bonds and arbitrage positions. The trust has a habit of coming to the fore when risk appetite is low and equity markets fall. The net asset value is in positive territory this year but a widening discount has affected the share price. The trust is trading at around a three year low which could be seen as an attractive opportunity.
Over five years to the end of September the fund has returned 68% compared to 11% by the AIC Investment Trust - Hedge Funds sector.
This trust gives access to a hedge fund from high profile hedge specialists Bevan Howard. Its team of traders invest in areas such as bonds, interest rates and currencies and performance stands out when equity markets fall, as it tends to move in the opposite direction, offering portfolio diversification. At times it may trade at a discount to its net asset value which can afford an attractive entry point.
Over the five years to the end of September the fund has returned 65.5% compared to an 11% loss by the AIC Investment Trust - Hedge Funds sector.
William Littlewood invests in equities, bonds, commodities and currencies, with macroeconomics dominating his thinking. This means he is happy to hold blue chip equities which he tends to reduce as markets go up and add to when they fall. The ability to take short positions gives further flexibility and Littlewood has been aiming to profit from his negative view on Western government bonds. However these have rallied on weak economic sentiment, affecting the fund’s ability to protect capital when risk aversion has been high. The fund has recently passed its three year anniversary and Littlewood comes with a strong track record. We are looking to see how the strategy can achieve a steadier profile in volatile markets.
Over the five years to the end of September the fund has returned 35.4 compared to 33.2% by the Average Manager - Citywire Alt UCITS Multi Strategy sector.
Trojan – Sebastian Lyon STAR PICK
Lyon has produced a highly impressive ten consecutive calendar years of positive returns. Gold and index linked bonds were the cornerstone of this fund’s 8.7% return last year and it has continued on a solid footing in 2012. The portfolio remains broadly unchanged and although asset classes that lead the way one year have a tendency to lag in the next, this fund has held firm. A third of the portfolio is in high yielding blue chip equities which along with cash at 17%, continues to highlight the manager’s bearish stance.
Over the five years to the end of September the fund has returned 52.2% compared to 16.3% by the Average Manager - Citywire Mixed Asset Absolute Return sector.