The Mellon Nippon absolute fund is the third sub-fund of the Mellon global alternative investments fund, which is a Dublin-registered Oeic. It aims to produce capital growth by investing in Japan.
It will invest mainly in hedge funds that use equity hedge, which involves long and short selling. Going short means borrowing shares, selling them and buying them back when their value has fallen. This is a specialist skill as fund managers must decide which shares are overvalued and guess when their prices will fall.
The fund will also have smaller exposure to other hedge fund strategies such as convertible arbitrage and event driven strategies. Convertible arbitrage is where hedge fund managers take advantage of pricing differences in the assets of the same company and event driven strategies exploit share prices during events such as takeovers.
Despite the diversity offered by the fund of funds style, its focus on Japan makes this a high-risk fund for high-net-worth clients and institutional investors. Some hedge fund managers are tempted to stray from their chosen strategies to get their funds back on track during difficult times, which can be a problem. The success of this fund will depend on finding the right blend of hedge fund strategies and taking full advantage of the economic changes in a volatile region.
According to Standard & Poor's, the Mellon tactical asset allocation fund is ranked 21 out of 145 funds based on £1,000 invested on a bid-to-bid basis with gross income reinvested over one year to November 19, 2001.