Barclays Capital launched its Radar (research analysis driven absolute return) fund in 2009, to provide access to the group’s 800-strong research team.
The group has run a published portfolio using this multi-asset strategy since 2006, weathering the credit crunch with a positive return in 2008 of 8.5 per cent.
Director of investment solutions Nathan Bance says five positive years for the Radar offering shows the strength of the process, with the team producing very detailed macro work each quarter.
“Our researchers will keep on debating until they produce a most likely outcome for markets and our outlooks tend to be more directional than the neutral predictions from many investment banks,” he says.
“Our extensive peer review helped us play the credit crunch well, for example, flagging up issues such as collateralised debt obligations and sub-prime debt early.”
Since the Radar offering went live in February 2009, it is up more than 40 per cent, benefiting from an equity risk-on position for most of the subsequent period.
In recent weeks, however, Bance says the group has taken around 30 per cent of its equity risk off the table, feeling the sharp inventory-led rally is in its last phase.
“Longer term, we believe bond yields will rise and equity price-earnings ratios will come down so are fairly neutral to bearish,” he says. “We were among the first into the risk-on trade and look set to be the earliest out of it.”
Key calls over the last two years have included a large position in financial debt – before selling down bonds in late 2009 – plus long positions in so-called commodity currencies and US technology and industrial stocks.
“In 2009, we were able to get equity-like performance through bonds and currencies heavily exposed to rising commodity prices, such as the Australian dollar,” says Bance. “Last year, we were also long technology and industrial stocks, preferring to play emerging markets via these areas as both invested excess to improve productivity.”
Bance admits the group could have played some of the political-driven market moves better, taking money off the table just before the EU bailout was announced, for example.
Coming into this year, BarCap feels the risk-on trade is entering its final months, citing a 30 per cent rally in the S&P 500 over the last six months with a maximum correction of just 3 per cent during this period. Against this, the team has been making macro-oriented trades, playing two-year versus 10-year government bonds with a view to the UK economy improving.
With risk assets expected to flatten out, Bance says this kind of relative value trade will be more common on the portfolio. Such strategies helped Radar produce positive returns in the 2007/08 period, with the team taking a more nuanced approach to volatility than simply sitting on cash.
“We kept gross market exposure above 100 per cent throughout the crisis but within this we were long and short various currencies,” says Bance. “We were long the FTSE 100 and short the 250, expecting the latter to sell off more. We were also short Asian equities, predicting the largest outflows in such high-beta areas.”
The team took an aggressive short position on commodities following Lehmans and more than half of the overall 2008 return came from these calls in the fourth quarter.
“Rather than just taking refuge in cash, we adopted various aggressive positions after highlighting imminent market problems in 2007 and this provides more evidence of the quantity and quality of our research,” says Bance.
Comparing Radar to other multi-asset absolute return offerings, he says the aim is for good risk-adjusted returns, playing the commodities story through currencies rather than piling into the S&P.
Volatility is similar to competitors such as BH Macro and L&G’s Dart fund but higher than something like Standard Life Investments’ Gars product, currently the most popular retail macro absolute return offering.
“We categorise the Radar fund as a high-octane directional product and hope our investors realise that a fund producing 30 per cent returns in a year will be taking more risk,” says Bance.
“We are currently working on the visibility and distribution of the vehicle, including listing in IMA sectors and platforms.”