The vehicle came to the retail market in August after being run as a paper portfolio for the previous nine months, and was seeded with £65m of assets from existing Aviva clients. It will soon sit in the Investment Management Association’s Absolute Return sector.
Lipner explains his investment strategy, which sees him aiming for a steady absolute return of 1% alpha a month, with the minimum amount of volatility.
His screening process hinges on assessing stock valuations, catalysts for change, and momentum. “On the long side I like buying stocks on low valuations that are unloved, and on the short side I like expensive stocks that are loved and overbought,” he says.
“On valuation I try to segment the market into quartiles by cheap and expensive, whether stocks are overbought or oversold, and earnings consensus – whether there are earnings upgrades or downgrades.”
At present the fund has about 40 long positions and 40 shorts. Typically it will have 40-80 holdings, with individual positions at between 1% and 5% each.
An example of a long position Lipner has in the portfolio is Home Retail, the group that owns Argos. “Home Retail is in the top quartile of yielders in the market, it is cheap, it has good cash flow, and it has had 14 upgrades recently and no downgrades,” he says. “It is an anomaly. Why has the market left it behind? That triggers me into further investigation, so I would talk to the company and see what’s going on, and try to find out when the market will see the company the way I see it.”
On the short side Lipner has a position in Hays, a recruitment agency, which he says is expensive, and has had 10 earnings downgrades but is still trading close to its 52-week high. “Everyone is buying it despite its earnings downgrades because they want a cyclical play,” the manager says. But the firm was recently fined almost £40m by the Office of Fair Trading, which could force it to cut its dividend, he adds, making it an attractive short.
“I try not to fall in love with stocks on the long or the short side,” he adds.
Lipner says he remains convinced by the absolute return story, despite the growing appetite for risk and higher alpha equity plays among investors. “Am I excited because the market has gone up for the last six months? No. The market could go sideways for another five years,” he says.
In the increasingly competitive absolute return market, the Aviva fund’s typically low volatility is what differentiates it from other products on the market, Lipner adds.