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Positive response

Conditions in financial markets remain difficult and the volatility that has been with us for the last year or so continues to be a feature. Sharp swings in market indices are occurring on an almost daily basis as investors react to the latest set of economic data or corporate news release.

In fact, it could be argued that rather than the exception, 2007 and the start of 2008 have been a return to more normal conditions and it was the low volatility years of 2003 to 2006 that were abnormal. If volatility is here to stay, investors will need to learn to adapt to these conditions, looking for new ways to generate alpha.

At Credit Suisse, within our multi-manager funds, we are looking for funds that can demonstrate diversification, flexibility and active management. We are seeking fund managers that use volatility to their advantage both on a relative and absolute basis.

One of the funds that we have recently invested in is BlackRock absolute alpha, which aims to deliver a positive absolute return regardless of UK market conditions rather than performing relative to a peer group or sector. While the UK equity market is firmly entrenched in negative territory year to date, this fund has not only outperformed on a relative basis but it is one of only a handful of UK equity funds that have generated a positive return year to date. Since launch, the fund has delivered returns typical of an equity fund combined with a level of risk more akin to cautious/bond funds.

Another addition to our portfolios is the recently launched Resolution International Cartesian UK equity 130/30 fund. The fund can go both long and short in the equity market, with half the portfolio invested in pair trades. What 130/30 funds provide is an institutional investment structure and strategy in the form of a retail fund. A key point to understand is that fund managers do not have to find stocks that they think will fall. Shorted stocks merely need to under-perform the stocks in which the manager has gone long for the strategy to add value.

At the same time, we are trying to make more effective use of cash through the use of exchange traded funds.

We are positive on the medium to longer-term outlook for equities and remain overweight in the asset class in our multi-asset portfolios but the continued volatility and uncertainty which is likely to stay with us in the near term means that flexibility, diversification and active management will remain the watchwords.

Scott Spencer is portfolio manager of Credit Suisse multi-manager team


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