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Cazenove goes on defensive for diversity tactical move

Cazenove has nearly finished transforming its portfolio fund into the diversity tactical fund, with hedge funds set to be added during the final phase of the restructure.

The firm says the restructure is now 80 per cent complete. Co-managers Marcus Brookes and Robin McDonald took over the fund at the start of the year and started turning it into a fund of funds by selling its direct holdings in equities and bonds to buy funds.

They are also positioning the fund more defensively than the average balanced fund by using alternative asset classes such as hedge funds, commodities and structured products.

The portfolio contains market-neutral Ucits III funds but conventional hedge funds have been earmarked because they have wider investment powers such as shorting stocks directly. Ucits III funds can only use synthetic shorting through derivatives.

Diversity tactical will hold hedge funds that appear in Cazenove’s other diversity funds, as Brookes and McDonald are used to them. They like hedge funds run by Crispin Odey of Odey Asset Management and Martin Taylor of Nevsky Capital.

McDonald says: “We look for funds that are genuinely uncorrelated. Crispin’s fund was up by around 18 per cent when everything went down and Martin’s fund was broadly flat against an emerging markets index which went down by more than 50 per cent.

“Some investors are nervous about using hedge funds, which have been used as a scapegoat because Joe Public does not understand what a hedge fund is. Hedge funds are just a wrapper permitting fund managers more discretion but you have to understand what you are buying and that just because something is an alternative investment, that does not make it a good investment.”

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