The Skandia alternative investment fund aims for growth by investing in 10 funds, each representing an asset class or theme such as commodities, water and infrastructure. It also invests across various alternative investment strategies that are commonly used by hedge funds.
Hedge funds have a low correlation to traditional assets such as equities and bonds, but Skandia observes that they are often seen as unsuitable for retail investors due to high fees, a lack of transparency and not being regulated.
Skandia’s fund uses a fund of hedge funds replacement strategy through the Fulcrum Alternative beta plus fund.This fund offers the benefits of funds of hedge funds within a transparent and regulated Ucits III format. Skandia says this structure also costs less than a fund of hedge fund.
Market inefficiencies are exploited through equity market neutral, currency and volatility strategies through JPM highbridge, Morgan Stanley FX alpha plus and Commerzbank UK Premia respectively.
Skandia’s portfolio also has exposure to global macro through Aviva Morley absolute TAA 5. Other investment themes are played out through Lehman commodity plus, KBC eco water, TG rare infrastructure, BlackRock gold & general and BNY Mellon passive investment, a timber fund.
Many of the underlying funds are usually available only to wealthy and institutional investors. Skandia will provide access to these funds for retail investors by blending all the themes and asset classes in a way that should achieve positive returns in different market conditions. Blending the portfolio will balance out the risks associated with each individual investment.
To select the underlying investments, Skandia’s investment team analyses at the characteristics of the funds, not just the past performance. It looks for managers whose performance can be attributed to skill rather than luck. Funds are chosen which blend well with the others in the portfoilio and are continuously monitored in line with the usual Skandia multi-manager process.
The portfolio will be rebalanced to the target weight of 10 per cent in each asset class to ensure diversification. Investments that have become a bigger part of the portfolio because they have performed well will be trimmed, while those with weightings that have fallen below 10 per cent will be topped up.
This fund is likely to appeal to investors who already hold traditional asset classes and who are looking for diversification in a risk-controlled portfolio.
However, the fund will contain funds that have fairly sophisticated investment strategies that some investors may not understand or feel comfortable with. Skandia must also ensure the underlying funds keep to their objectives and risk parameters, as any deviation could have a negative impact on how the funds work together in the portfolio.