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Privalto combines active and passive management with tracker

The Privalto Millennium tracker fund is an Oeic that combines the low cost and liquidity of passive investment with active asset allocation.

This absolute return fund will track the BNP Paribas Millenium 10 Europe Series 3 (Sterling Hedged) Total Return index. The index is geographically diverse and comprises nine indices that represent different asset classes.

Bonds are represented by the iBoxx Euro Index Eurozone Sovereigns 5-7 years index, equities are represented by the S&P 500, Dow Jones Eurostoxx 50, Hang Seng and Tokyo stock price index. The Dow Jones-AIG Commodity index, USD-EUR Cross Currency Rate, EPRA Eurozone Index and Capitalised Euro OverNight Index Average represent commodities, currencies, commercial property and money markets respectively.

The construction of the Millenium index is based on the efficient frontier theory which focuses on the maximum rate of return for the level of risk that is taken. Allocation to the underlying indices is adjusted every month through a quantitative model based on returns, volatility and correlation.
Weightings fall within set ranges so that equity, commodity and currency allocations can be up to 25 per cent long or short. Commercial property may comprise up to 25 per cent of the index and for bond and money market, the weighting is up to 100 per cent.

This fund puts a multi-asset spin on a tracker fund in a way that could bridge the gap between active and passive funds. This could provide investors with the benefit of diversity with lower costs than actively managed multi-asset funds.

However, the computer-based quant model which underpins the asset allocation relies on sustained market trends. It is not expected to perform when there are no sustained trends or during short-term market turmoil. New trends that follow a change in market conditions need to become fully established for the quant model to be at its most effective.

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