Best in Class: BlackRock UK Absolute Alpha
In the absence of any live sport, I have started trawling through the likes of Netflix, BBC iPlayer and ITV Hub in my downtime.
BBC iPlayer was the winner over Easter weekend, as I stumbled across all of the Indiana Jones movies.
I ended watching the third film in the franchise – Indiana Jones and the Last Crusade. It sees Harrison Ford and Sean Connery (who plays Indiana Jones’s dad) search for the Holy Grail.
One of the best scenes in the film is where they have to choose the right cup (the holy grail) to drink from. The real one (offering eternal life) is hidden among dozens of flashy false grails.
Indiana Jones picks the simple cup and you know the rest.
It was only a decade or so ago that absolute return funds were being viewed as the holy grail for cautious-minded investors, many of which had been left financially-scarred by the credit crunch.
Fast forward to 2020 and it’s a sector which has underwhelmed investors on the performance front, with a wide variety of strategies giving rise to significant dispersion in returns in the one sector you really do not want that to happen.
This has resulted in investors voting with their feet - in fact we saw almost £5bn of net retail outflows from the sector in 2019 alone.
Covid-19 has changed the investor mindset again and, all of a sudden, these funds are having a little revival, with the average fund in the IA Targeted Absolute Return sector falling 6 per cent since 20 February, at a time when global and UK equities are down 14.9 per cent and 22.5 per cent respectively.
Just like the cup, we always find the simple absolute returns funds are the most likely to deliver, and that is what this week’s best in class has done.
BlackRock UK Absolute Alpha is managed by Nigel Ridge, who took over the portfolio in April 2013. He has been a member of the UK equity team since 2004 and has been running long/short mandates since 2005.
The fund was restructured upon Nigel taking over and is now higher conviction but with a conservative net exposure to the wider stock market.
Mr Ridge is a pragmatic stock-picker who will take the macroeconomic environment into account as well as company fundamentals.
The fund aims to achieve a positive absolute return for investors on a 12 month-basis, regardless of market conditions using four main strategies: long positions, short positions, pairs trades and cash.
Mr Ridge will do this by investing in both equities and contracts for differences (CFDs).
He aims to identify a catalyst that could unlock potential value and increase the price of a share. In contrast, for a short holding, he will look for a catalyst which will damage the share price.