View more on these topics

Go long on experience

Chris Salih reports on 130/30 fund strategies

Advisers looking to invest in 130/30 funds have been told by JP Morgan Asset Management to put their trust in experience.

Head of UK sales Jasper Berens believes the ability of fund managers to take short positions in these funds can cause problems if the manager lacks experience of shorting and the firm lacks the infrastructure to support them with analysis.

He says: “First of all, you need to use leverage to buy more stocks that you actually like, which you need a process for but ultimately you also need a process for the stocks that you are not so sure on and will look to short. Not many have the expertise to do shorting efficiently, meaning that some will not have the ability to run these vehicles.””130/30 funds should only be for the best fund managers. If all groups could do this, they would have announced the fact they are launching already, indicating that some are nervous.”

The 130/30 concept stems from the US institutional market and enables managers to potentially produce greater alpha by using leverage to increase long exposure while also shorting stocks.

The strategy has grown into a £15bn business in the US so it is no surprise that fund firms are trying to get in early as the trend starts to take off in the UK.

JP Morgan and UBS are two companies that are looking to use their experience from across the Atlantic but others, including Resolution, Threadneedle and Barings, are also launching vehicles.

Resolution is set to launch a 130/30 fund through one of its 50/50 boutiques in the shape of Cartesian Capital Partners. The UK vehicle is to be run by Andrew Kelly and David Stevenson, with further launches planned for its other boutiques.

Head of sales Jonathan Polin says Kelly and Stevenson have considerable experience of the hedge fund market and the launch is coming from major demand from an institutional client.

Polin says: “It is generally down to the manager and stockpicking, as well as their ability to short. Boutiques can run these things as they can bring in the analysis tools from external sources. Plenty of boutiques run massive hedge funds and while 130/30 are not the same things, there is proof that they can be run in this environment.”

BestInvest head of communications Justin Modray says: “We have only started to look at them. The key fact is that these vehicles can easily destroy alpha as much as they can create it if the manager gets it wrong.

“The fund manager needs to be a great stockpicker, that is the crux of the fund’s success, the group has some relevance but if a boutique wants to launch a 130/30 fund and has a good stockpicking manager, as most who join boutiques generally are, then there is no reason why the fund cannot be a success.”

Chelsea Financial Services managing director Darius McDermott says for now most IFAs are most likely to favour companies and managers with track records in the 130/30 arena until newer entrants show what they can do.

He says: “The management on the long-only side is important but the short-side knowledge is vital so the manager needs a track record in hedge funds.

“We like UBS because they have a good record in running these vehicles in the US. The fund manager and the process are the crucial factors and in Tom Digenan they have a manager we know can perform, as shown by the firm’s US equity fund, a long-only version of the fund he is due to launch, and he also has a track record in 130/30.”

Multi-managers are also looking to at these funds, although they are only likely to be satellite holdings.

Lawrence House head of multi-manager Alan Stokes says: “I would tend to go for someone who is tried and tested like Old Mutual or Cartesian. I would back their experience of realising that the gains they can make on the upside can be exaggerated but falls can equally be exaggerated on the downside.”

Stokes is cautious of variations of 130/30 that are being put forward, such as 120/20 or 150/50.

He says this is because most of the research he has seen indicates that 130/30 hits the “sweet spot” in terms of alpha generation.

He says: “The notion of a 150/50 fund scares the hell out of me when I think about the potential downside. But again if the fund manager is good enough the fund will succeed. I just feel that with all these offerings in the market there is bound to be tears before bedtime as ordinary investors do not fully appreciate the downside.”


Realise your potential

Continuing to consider the assessment of realised gains under roll-up funds

Standard slaps 26% MVR on NRA cash

An adviser has slammed Standard Life for applying a 26 per cent market value reduction on the with-profits holdings of a client who has reached his nominated retirement age.Bates Investment Services adviser Alan Drysdale says unless the client, who wants to transfer the fund, annuitises or takes a tax-free lump sum and moves into drawdown, […]

Why property funds dual-price

A week is a long time in fund management. Returning after a week’s holiday. I am met with a torrent of emails and press cuttings about investors “losing money” on property funds.

Selestia Investment Solutions confirms launch dates

Selestia Investment Solutions has confirmed it will be going live to adviser consultants on August 1 and live to advisers on August 15.Skandia head of UK marketing Billy Mackay says the consultant pre-launch will allow the key benefits of the system to be demonstrated to advisers and ensures the platform addresses some of the training […]


News and expert analysis straight to your inbox

Sign up


    Leave a comment


    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm