Legal & General – UK Absolute Return Fund
Minimum investment: Lump sum £500, monthly £50
Investment split: 100% long and synthetically short in UK equities and derivatives
Isa link: Yes
Charges: Initial 5%, annual 1.5%, performance fee 20%
Commission: Initial 5% or initial 3% plus 0.5% renewal
Tel: 0845 070 8684
Legal & General has recently unveiled two absolute return funds – one which invests in the UK and one focusing on Europe. Its UK absolute return fund, managed by head of UK equities Robert Churchlow, aims to achieve a positive absolute return in all market conditions on an annual basis. It will take short positions using derivatives, which is allowed under the Ucits III rules, providing investors with both long and synthetic short UK equity exposure.
Bright Financial Services director Paul Breaks says: “Legal and General has launched a UK absolute return fund which aims to deliver positive absolute returns over time regardless of market conditions.
“The fund intends to take full advantage of the ability to invest in a variety of derivatives providing both long and short exposure to a wide range of assets, principally through the use of contracts for difference, exchange traded and other derivative instruments. At times the fund may have derivatives exposures of up to 100 per cent of its assets.”
Looking at the potential drawbacks of the fund, Breaks says: “In 2006 there were less than half a dozen absolute funds, but now there are more than 40. The average return was 10.8 per cent in 2009, admittedly with a few notable positive exceptions, and -4.6 per cent the year before. “
He observes that both figures were beaten by the fixed income GBP sector. “My view is that a diverse and well balanced portfolio will beat absolute return funds in the medium to long term.” He also thinks that clients will take additional convincing about the merits of using derivatives to take short positions, given the underlying causes of the credit crunch.
Discussing the main competition, Breaks says: “Competition will come from rival absolute return funds and the growing awareness of exchange traded passive portfolios offered by firms such as Seven IM.”
Summing up Breaks says: “With clients beginning to appreciate the third party fund links available via mainstream insurers it is becoming harder to justify investing in insurers’ fund, unless performance warrants.”
Suitability to market: Average
Investment strategy: Average
Adviser remuneration: Average