Absolute returns with a difference from Cazenove
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Absolute UK Dynamic Fund
Type: Oeic
Aim: Growth by investing long and short in UK equities and derivatives
Minimum investment: Lump sum £1,000
Investment split: 100% in UK equities and derivatives
Charges: Initial 5%, annual 1.5%, performance fee 20%
Commission: Initial 3%, renewal 0.5%
Tel: 0800 015 9592
The Cazenove absolute UK dynamic fund applies a long and synthetic short investment strategy to small and medium-sized UK companies.
Chadney Bulgin partner Bruce Bulgin says: “This is an absolute return fund based on UK stocks and is similar to Neil Pegrum's UK dynamic absolute return hedge fund, which has delivered excellent returns but has not been available to retail investors.”
Bulgin notes that the target return is 10 per cent a year, but this is not guaranteed, nor is preservation of capital. “Unlike a traditional long only fund this absolute return fund exploits shorting techniques through contracts for difference. CFDs offer a lower cost method of equity exposure and can also be used for long positions. They can be used to leverage positions but leverage is limited to 300 per cent in the fund and would normally not exceed 200 per cent.”
Through skilled management, this fund can deliver positive returns in falling as well as rising markets. “Pegrum and his co-manager Paul Marriage have top class track records and the hedge fund has achieved an annualised return of 15.79 per cent since launch in 2005, with less than half the volatility of the FTSE All-Share index,” says Bulgin.
He adds that its target number of stocks is 30 to 50 - much less than most actively managed funds.
Assessing the charges, Bulgin points out that there is a high water mark to prevent the performance fee being paid unless the net asset value of the fund is above the highest NAV at the end of the previous quarter. He feels the annual charge is average for actively managed fund and commission is standard. He notes that the initial charge is 5 per cent for retail shares but says there is an increasing trend to buy funds on platforms rather than directly from the fund manager. “The literature is informative and covers the way in which the fund works in some detail,” he says.
Considering the less attractive aspects of the fund Bulgin says: “The fund is complex and it is unlikely that many investors will understand the concepts of synthetic shorting and CFDs. However, the concept is attractive and has been used to great effect by other funds.”
He adds that the number of holdings is low and the focus on small and mid caps is likely to increase volatility. “But as long as the investor is aware of this then so be it,” says Bulgin.
He says the absolute return sector is growing and many managers are introducing funds of this type which could compete with Cazenove’s fund. “Black Rock's UK absolute alpha was for a time one of the top selling funds. In sharply rising markets these funds are likely to underperform but recent volatility has been good for the sector.”
BROKER RATINGS
Suitability to market: Good
Investment strategy: Good
Charges: Good
Adviser remuneration: good
Overall 8/10
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