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Skandia best ideas steps up

Skandia Investment Management has taken its manager of managers best ideas range a step further with a fund that can make money in falling markets by shorting derivatives.

The UK strategic best ideas fund has the same framework as the other two funds in the range in that 10 managers will select their 10 best stock ideas.

The difference is that the new fund allows the managers to create synthetic short positions using derivatives. They will take out contracts where a broker will pay the difference between the price shares are bought and the price they are sold. If the share price falls by the end of the contract, the manager will make money. If the share price rises, the manager will lose money.

Managers are able to adjust the balance between their long and short positions depending on their market views. All 10 holdings can be long, but they are restricted to a maximum of five short positions. They can also hold up to 25 per cent cash if they want to take a defensive position.

Managers will be selected on their ability, philosophy, investment process and track records. They each have different styles and will have the freedom to invest wherever they want without benchmark constraints.

At launch, the line up comprises managers from Artemis, Axa Framlington, BlackRock Merrill Lynch, Cazenove, Gartmore, New Star, Resolution Cartesian, SVM and Threadneedle. Although the underlying managers were chosen for the long-term, Skandia will constantly monitor them and could replace them if deemed necessary.

Selecting top managers for their best long and short ideas could provide good opportunities for returns, ensuring diversity at a manager level while giving them greater freedom to back their convictions through the synthetic shorts.

The fund also marries the benefits of a concentrated portfolio with the benefits of multi-manager in that each manager is limited to 10 stocks for their particular style, so every stock idea counts but the overall portfolio of 100 stocks is broader than a concentrated single manager portfolio.
However, synthetic shorting is still relatively new and getting the short positions wrong could result in higher losses than making the wrong decisions in a long-only portfolio.


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