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‘Absolute returns the next big thing’

Gartmore deputy head of multi-manager Marcus Brookes believes that 130/30 and 140/40 funds are likely to be the next big fund trend.

Brookes says the wider adoption of Ucits III and Nurs has given providers a number of different strategies to successfully run an absolute return offering.

He says: “In the pre-Ucits III days, providers were restric-ted to offering a maximum of 10 per cent in cash within each of their portfolios. However, the new rules have definitely changed those boundaries as they can go 100 per cent cash, making these vehicles far more viable.”

Absolute return portfolios offer an amalgamation between a hedge fund and a longonly vehicle by allowing a limited amount of long/short positions within a fund.

For a 130/30 fund of, say, £500m, a manager may be able to hold a £150m short position, with the stocks then sold on to create investable cash for the leveraged long-only side, balancing both sides out as the fund is 100 per cent invested.

Brookes says: “They are designed perfectly for a market like today, where after four years of strong bull returns, they can offer a defensive option against any possible setbacks. For multi-managers, it is just another tool in the box to allow us to do our job better.”

Hargreaves Lansdown head of research Mark Dampier says: “They have only just come on the scene. On the one side, if these vehicles are used properly, they can be very good tools. However, it is important to remember that they do not protect all the downside as they are still 100 per cent invested.”

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