Fund Review: Henderson Multi-Manager Absolute Return fund

The equity market rallies in the first half of 2013 has led the team managing the £182.07m Henderson Multi-Manager Absolute Return fund to take profits and reduce risk in the portfolio, including cutting exposure to high yield bonds and long only equities.

Originally the Multi-Manager Global High Alpha fund, it changed its name, investment objective and fee structure in October 2008 to the current Multi-Manager Absolute Return incarnation.

According to James de Bunsen, fund manager on the Henderson multi-asset team that runs the portfolio, the aim of this particular fund is to provide a positive return over the long term, by typically delivering absolute (more than zero) returns on a rolling 12-month basis.

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It sits in the IMA Targeted Absolute Return sector although the manager points out an absolute return performance is not guaranteed.

The manager adds: “The strategy is designed for relatively risk-averse investors who do not want to experience significant drawdowns but also seek a positive real return.”

Mr de Bunsen notes a key part of the investment process is diversification across asset classes, which also then helps to reduce the volatility within the fund.

The multi-asset team, which took over the running of the fund in March 2013 and includes veteran manager Bill McQuaker, seeks to exploit the full capabilities of its 12-strong members by examining a range of influences on performance such as asset allocation; country allocation; sector allocation; cross-sector themes; and manager style and flair. By taking a strategic position in each one of these the team suggest it is possible to add significant value to the performance of a portfolio.

Macroeconomic factors also have a place in the fund, as Mr de Bunsen explains: “The team’s top-down views are reflected in a meaningful way in the portfolio. Most notably, this is currently illustrated by a relatively large cash weighting of roughly 25 per cent, minimal conventional government bond exposure, no emerging market exposure and US dollar exposure of approximately 15 per cent.

“Nevertheless, a core part of the portfolio is invested in absolute return strategies that should perform regardless of the macro backdrop. The main consideration when selecting these strategies is whether the opportunity to generate alpha exists within that asset class (for example, sufficient dispersion and/or market inefficiencies) and whether the fund manager/team has/have the wherewithal to deliver those returns.”

Since taking on the absolute return mandate in October 2008, the fund has produced a cumulative return of 26.4 per cent to July 31 2013, slightly underperforming the IMA Targeted Absolute Return sector average of 27.6 per cent, according to Morningstar data.

For the year to date Mr de Bunsen says: “The fund has seen a material amount of profit-taking and risk reduction as markets rallied very strongly in the first half. The high yield exposure was reduced from roughly 15 per cent to approximately 2 per cent and long only equities from approximately 14 per cent to 9 per cent (net).

“As well as letting cash build up, notable new positions include some direct UK commercial property, a play on the US housing recovery, increased exposure to absolute return fixed income and the addition of a (listed/investment trust) infrastructure vehicle.”