This £214m fund is an equity long/short strategy that aims to achieve a positive absolute return across rolling three-year periods by investing mainly in UK and global equities.
Making its debut appearance in the Investment Adviser 100 Club this year, the vehicle launched in 2008 and is managed by David Crawford against a cash benchmark to reflect the aim of delivering a positive return “in all stockmarket conditions”.
Mr Crawford notes the investment process is “intensely bottom-up”, with a focus on absolute and not relative returns. The strategy is driven by fundamental company analysis, taking a long-term view of the quality of a business, the fund’s factsheet shows.
The management team includes Ade Roberts as deputy manager and equity analyst Alex Correia. It undertakes an intensive programme of company visits that covers roughly 300 firms each year, with support from external research from specialist brokers.
Mr Crawford adds that the long ideas in the portfolio are then sourced from underappreciated but well-managed businesses, while the shorts are made up of the reverse. This is where the team seeks out companies where the quality of their business models and prospects are overpriced in the stockmarket. The factsheet notes the team is prepared to hold these long and short positions until the investment thesis has been borne out by the stockmarket and share prices reflect their expectations.
The manager adds: “The fund is dynamically managed, with recent changes reflecting a more positive tone towards energy stocks after the recent slide in markets. Meanwhile, the short [position] in US biotechnology stocks persists.”
The vehicle’s risk-reward indicator sits at a level five out of seven, while the ongoing charge for the A-accumulation share class is 1.86 per cent, its key investor information document shows.
The fund has delivered an impressive 238 per cent from launch to October 29 2015, compared with the Investment Association (IA) Targeted Absolute Return sector average of 25.3 per cent. Meanwhile, its Libor GDP 3-Months benchmark – which is used for comparison purposes – gained 9.9 per cent, data from FE Analytics shows.
In addition, the portfolio has significantly outperformed the sector average and the cash index across one, three and five years to October 10 – including a five-year return of 120.7 per cent, which is almost eight times the IA sector average of 15.4 per cent.
Mr Crawford attributes this strong performance to the fund’s shorting aspect, noting the “shorts [are] contributing two-thirds of the total return year to date. In 2014, it was virtually 50/50 between long and shorts”.
Figures for the past 12 months – a period that has seen particularly volatile markets – are also positive, with the fund delivering a strong 28.9 per cent against the sector’s average return of 3.7 per cent and the benchmark’s gain of just 0.6 per cent. He adds that last year the portfolio benefited from strong performances in short positions in Monetise, 3D Systems and a number of mining stocks.
“We also had good gains from the long book, including Skyepharma and Xaar,” the manager notes. “The gains have been broad-based across the short book in 2015, including sectors such as mining, oil and gas, and biotechnology. We also achieved solid gains in our long book in non-bank financials, with names such as Partnership Assurance and Just Retirement performing strongly.”
On the flip side, he acknowledged the fund had suffered some detractors from performance on a stock-specific basis, such as short positions in Under Armour, Keurig Green Mountain and Tesla. Detractors from the long book included Ocwen, Superglass, Genworth and Cairn Energy.
But Mr Crawford says the outlook for the portfolio remains optimistic.
He explains: “The fund continues to invest in both long and short positions, and there are numerous anomalies to exploit for the remainder of the year given heightened levels of volatility.”
EXPERT VIEW
Martin Bamford, chartered financial planner, Informed Choice
This is that very rare example of a fund in the targeted absolute return sector that has actually managed to deliver an absolute return. This vehicle has held a consistent first-quartile position in the sector in the past five years. Its short-term performance has been impressive and more than justifies the 1.86 per cent ongoing charge. David Crawford has small companies experience, which has translated well into some of his equity positions. The fund seeks to go long on undervalued stocks and short on overvalued stocks – a reasonably straightforward approach for investors to understand. This would be a good option for those considering a targeted absolute return equity fund within their portfolio.
