Aim: Growth by investing long and short in UK equities and equity-related derivatives
Minimum investment: Lump sum £1,000
Investment split: 100% long and short in UK equities and equity-related derivatives
Isa link: Yes
Charges: Initial 5%, annual 1.5%, performance fee 20%
Commission: Initial 3%, renewal 0.5%
Tel: 0800 212433
Gartmore’s UK absolute return fund aims to provide positive returns regardless of market conditions by taking long positions in UK companies and synthetic short positions using equity related derivatives such as swaps and futures.
Putting the fund into its market context, Chelsea Financial Services managing director Darius McDermott says: “Unsurprisingly, we have seen a deluge of new absolute return products in the last year as fund managers try to come up with products that will smooth out volatility.
“Legal & General, Skandia and Cazenove have all recently brought new products to the market, not to mention the whole host of asset managers linked with impending absolute return fund launches.”
McDermott adds that the likes of Blackrock and Newton have been delivering hedge fund strategies to the retail IFA so well that it is difficult to see how the new players in the market will convince advisers not to go with the tried and trusted in a sector very much at is embryonic stage. “And herein lies the challenge: what can asset managers offer advisers that the competition already do not?” he says.
According to McDermott, the Gartmore UK absolute return fund offers advisers something a bit different. “That difference is risk. Instead of taking a market neutral position, this fund works on a market directional strategy, taking high conviction long and short positions in the equities of bigger UK companies.”
He says the fund will be capable of delivering decent returns on the downside, but suspects it will also give a few long-only managers a run for their money in a market upturn.
“Backing this strategy is the experience of Ben Wallace, who is well-equipped to run hedge fund strategies. The new fund will employ a similar strategy to the one Wallace already uses on his large-cap Octanis hedge fund, which is part of the firm’s AlphaGen range,” says McDermott.
He notes that the performance of the Octanis fund has been very impressive. “Net of fees, it returned 29.4 per cent last year. Between March and September of that year it returned 81per cent. This is a manager delivering 20 per cent a year to investors regardless of conditions, which in itself is differentiation from the market.”
Turning to the less appealing features of the fund McDermott says: “Fees have always been a bugbear of mine and it has sadly become the norm for these type of funds to hit investors with hedge fund-like performance fees. This fund carries an initial charge of 5 per cent with an annual management charge of 1.5 per cent. It will also levy a 20 per cent performance fee subject to a high water mark.”
However, he concludes that if the fund performs anything like Wallace’s other funds, clients will not be to miffed by the above-the-norm fees.
Suitability to market: Good
Investment strategy: Good
Adviser remuneration: Average