BlackRock UK Absolute Alpha

As a result of political uncertainty, a slowdown in global growth and a focus on Europe’s indebtedness, 2011 proved a difficult year for the BlackRock UK Absolute Alpha fund – its worst since launch in April 2005.

Nick Osborne, co-manager of the £835.5m fund, says that last year was a “regrettable experience”, with the fund’s investments losing 7.06 per cent in the year to December 31 2011.

The loss last year has also hampered the fund’s long-term performance record. While it returned 52.07 per cent since launch to December 31 2010, compared with the average fund in the IMA Absolute Return sector, which made a 30.99 per cent gain, its performance over the past three years has been less favourable. In the three years to August 24 2012 it posted a loss of 2.87 per cent, compared with the average fund in the sector, which made a gain of 7.44 per cent.

Mr Osborne says, nevertheless, that the fund’s management team is “very proud” of the fund’s record since launch and have made important changes to stabilise performance and put it in a strong position.

“We have been very candid with our investors about the sources of our underperformance, and the changes that we’ve made to the portfolio’s construction have benefited the fund through the first six months of 2012. This year we have run with a pretty modest net market exposure and tried to take out that risk and instead focus on the shares that we have within the portfolio,” he adds.

In the six months to June 30 2012, the fund outperformed the IMA Absolute Return sector, returning 0.96 per cent compared with its peer group, which made a return of 0.37 per cent.

Nevertheless, Mr Osborne admits that 2012 has still had periods of volatility and the investment landscape has by no means been easy to navigate.

“Equity valuations are quite low both in absolute terms, but most compelling relative to risk free investments such as cash and gilts,” he says.

“However, the environment is difficult. We’re faced with valuations which largely present opportunity, but a backdrop which is very tough. And clearly the European economic weakness is now impacting other areas of the world too. Just look at the weak Chinese export numbers, for example.”

However, thanks to a dedicated team of 18 UK investment professionals, Mr Osborne says that he and co-manager, Mark Lyttleton – who is about to return from a three-month sabbatical – can look at the market in-depth and are never short of ideas to pursue, with only the best ones making it into the fund.

The fund’s long book comprises stocks which have a genuine advantage, defined by a favourable geographic exposure or a favourable technological position. They are companies that will be able to grow their earnings and profits in the tough and worsening economic environment.