Aim: Growth by investing long and short in UK equities and derivatives
Minimum investment: Lump sum £1,000, monthly £100
Investment split: 100% in UK equities and derivatives
Isa link: Yes
Charges: Initial 5.25%, annual 1.5%, performance fee 20%
Commission: Initial 3%, renewal 0.5%
Tel: 0800 0199 110
The SVM UK absolute alpha fund is a UK equity fund that will use shorting techniques through derivatives to benefit from falling share prices.
Chadney Bulgin partner Bruce Bulgin says: “The SVM absolute alpha fund is based on the techniques that SVM uses with hedge funds, in particular its saltire hedge fund.”
Bulgin points out that the saltire fund can demonstrate long-term success and that SVM claims it has maintained value over any 12-month period. “This is impressive in difficult market conditions experienced by investors and few will have made any gains over the past six years.,” he says.
Bulgin explains that SVM absolute alpha is an absolute return fund, which, in addition to traditional long positions, takes advantage of synthetic shorting by investing in a type of derivative known as contracts for difference. He adds that this can be low cost because there is no stamp duty to be paid.
“The attraction of this approach is that gains can be made in all market conditions, unlike a traditional long-only fund. The fund is in the new IMA Absolute Returns sector and aims to out-perform cash with a planned return of up to 10 per cent a year,” says Bulgin. He says the fund’s lead manager Colin McLean is highly respected.
Discussing the company in more detail, Bulgin says: “SVM is a boutique fund manager and states that it has rigorous risk management techniques in place. Likewise, it plans to limit the size of the fund.”
Looking at the less attractive features of the fund Bulgin says: “Charges are on the high side and there is a performance fee, but this only kicks in if there is out-performance of 20 per cent when compared with the performance of the benchmark.”
Bulgin also has concerns about the derivatives strategy the fund will use. “The techniques used should reduce risk, but in some cases risk could be increased owing to the nature of CFDs, where positions may need to be closed. So if the fund manager makes the wrong calls with both short and long positions then losses would be magnified.”
He adds that inevitably the fund is more complex than a traditional long only fund and this may put off some clients.
Bulgin scans the market for potential competitors. He observes that as the IMA Absolute Returns sector is increasing in size, a number of other fund managers have similar offerings, including BlackRock.
“BlackRock’s equivalent fund has been one of the top selling mutual funds over the past year. The fact that there is a specific sector for this type of fund is good news in that it is likely to under-perform long only funds in sharply rising markets, but is more likely to product positive returns in falling markets,” he says.
Bulgin concludes: “In many ways, SVM UK absolute alpha is similar to a hedge fund and it is based on SVM’s saltire hedge fund. However, unlike hedge funds there is no leverage, which reduces risk. Taking account of SVM’s success with Saltire and other hedge funds, the new fund should be a success.”
Suitability to the market: Good
Investment Strategy: Good
Adviser Remuneration: Average