The TM Neuberger Absolute Alpha fund has reached its first year anniversary, having launched in 2019. The fund is run by manager Steve Eisman (pictured), who was made famous in the film adaption of Michael Lewis’ book The Big Short.
Mr Eisman was one of the few individuals who spotted the crisis in the American financial system and was able to profit from shorting the US mortgage-backed securities market.
Although the film makes the rewards of investing in absolute return strategies much greater than they usually are, in recent years the asset class has struggled.
It has lagged behind an equity bull market, while many funds in this space have not done a great job of protecting investors during periods of market volatility or corrections.
Mr Eisman also takes a dim view of funds in this area, saying most are long-only funds in disguise, which spend most of their time looking at long-only ideas and do not invest as much effort to identify short positions.
The Neuberger fund is a long/short equity fund with the objective of looking to generate alpha from both its short and long positions.
It offers 100 per cent transparency and a flat fee – so no performance fees.
Both are uncommon in the absolute return space but the flat fee approach has already started to gain traction.
Mr Eisman’s starting point for investments is perhaps different to other managers.
He looks at the financial system, which he considers the plumbing of the economy, and therefore any warning signs that appear are likely to surface here first.
When it comes to shorting stocks, he is not just looking for expensive companies as they can remain so and indeed get more expensive for long periods.
He is looking for a trigger, a change in fundamentals to a more negative view that is not fully recognised by the market. If a company is expensive then that is a bonus.
The portfolio is long tech stocks. Each tech company they invest in has one similarity. Even though they operate in a very different markets, they are all oligopolies.
The other area of the market the fund has a conviction in is financials.
Here they are net short. They hold a long position in the US and short in Europe, but the largest short is Canada.
Mr Eisman’s fame may lead investors to follow him, but he has also had periods of lacklustre performance. Having previously declared that company fundamentals were no longer driving markets, he ended up closing his fund management company Emrys Partners.
Adrian Lowcock is head of personal investing at Willis Owen