Aberdeen co-head of multi-manager Graham Duce believes the firm’s decision to launch a fund of Ucits funds offering will give it a competitive advantage as the multiasset market continues to develop.
The Aberdeen MM diversified alpha fund has evolved out of its multi-asset growth fund and launched on May 1. Previously, the fund could only invest 50 per cent in total return funds and 50 per cent in directionally longonly fund but the team now has the ability to invest 100 per cent in total return offerings.
Duce says that the number of hedge fund products is growing at a tremendous pace.
He says: “There is now $90bn of assets in this market and the number of Ucits III type hedge funds has quadrupled from 150 in 2008 to 600 now, 130 were launched last year alone.
“What is happening now is that a number of hedge fund goliaths are entering the arena and that is because in 2008 many investors, particularly in Europe, looked to leave hedge funds only to find the shutters up and that left people sore about the fund of hedge fund world.
“What Ucits III offers as an alternative is flexibility, transparency and a regulated environment. The big names are coming and they will continue to come, with different levels of sophistication, skill-sets and ideologies.”
Duce says the diversified alpha fund launch, which looks at a number of these offerings, puts the firm in an enviable position at a time when more hedge fund Ucits III-type vehicles are being made accessible to the market. Duce says the firm has a strong fund of hedge funds team that gives them an insight into these products.
Aberdeen acquired the fund of hedge fund team, which manages around £4bn of assets, as part of an £85m deal with RBS in January 2010.
Duce says: “There is a buyerbeware attitude that needs to be adopted, the level of sophistication means investors must be very aware of what they are buying and they offer a greater challenge to multi-managers on how the alpha is being generated.”
Duce originally took on the multi- manager range from Gary Potter and Robert Burdett at Credit Suisse Asset Management in April 2007, although the team of four comprising himself, Aidan Kearney, Scott Spencer and Rob Bowie were part of the Aberdeen Asset Management acquisition two years later, the process and set-up of the fund range has not changed much. The team effectively splits the investment universe into 12 sectors with two of the team focusing on each sector, with responsibility rotating to keep ideas fresh.
Duce says: “There has been no change in the construction of the funds. We construct our managed portfolios on a two-tier basis for example, with high-conviction introductions made at 6 per cent and tier-two funds introduced at 4 per cent.”
The team is one of the bigger in the multi-manager area, running £750m of assets across 12 funds.
These range from its UK income fund to its constellation portfolio, which invests in funds run by companies that are believed to be a boutique in nature. The team holds 20 equal positions of 5 per cent in the constellation portfolio. Duce says he takes particular pride in the team’s ethical fund.
He says: “We feel it has been a unique fund and it has deserved more airtime given that it has beaten the majority of its peers in absolute terms. One of the problems it has is that it sits in the bag of spanners sector that is the specialist sector and is placed with the likes of gold and Korea funds.
Duce says absolute return funds are likely to become more prevalent across the range in the future, highlighting market conditions and the introduction of these hedged fund-type Ucits offerings growing in the market. He says: “The past few years have been all about beta. It has been
about getting on the winners like commodities as markets have effectively doubled in the past few years. What we are likely to see now
is a more fundamentally driven environment.
Duce points to the difficulty of making money in the fixed-interest sector in the next two or three years – due to interest rates rising in emerging markets – as an example of a catalyst for more people taking the absolute return route.
’We feel it has been a unique fund and it has deserved more airtime, given that it has beaten the majority of its peers in absolute terms. One of the problems it has is that it sits in the bag of spanners sector that is the specialist sector and is placed with the likes of gold and Korea funds’
The team recently doubled its cash exposure across the multimanager range from 2-3 per cent to around 5-7 per cent due to a number of economic headwinds they feel are now having an impact on the market. Duce points to the fact that equities have recovered really well in the past two years, with the S&P500 doubling and emerging markets up by 160 per cent.
He says: “There has been so much in favour of markets, with lax economic policies and two rounds of quantitative easing. The rebound in equities has meant we are due a breather, momentum is slowing and economic data is getting softer.”
Duce says even from a microperspective, companies have seen strong balance sheets and high cashflows but warns that the economic indicators are there and we are beginning to see negative earnings revisions.
He says: “The black clouds are looming, European sovereign debt concerns in Greece are rife and the problems in Ireland and Portugal are not going to go away. China is overheating and there is inflation in the emerging markets. There are also commodity concerns and the need for the US to tackle its budget deficit.”
Duce says the team has not been rewarded for its decision to raise its cash weighting and that perhaps it should have been more aggressive in doing so in the past few months. He says: “We have not been expecting a major retreat as we felt that the downturn would be more along the lines of correction levels. If the FTSE100 was around 5,600-5,700 we would look to spend a bit more and we have done a little bit in the UK recently. We expect to see a pick-up in the economic environment towards the end of this year and we preparing our portfolios for that.”