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Swip has the power

Scottish Widows Investment Partnership has established a range of three absolute return funds, including the absolute return macro fund.

This fund aims for capital growth in all market conditions by investing in a portfolio of different asset classes using the wider investment powers of Ucits III. These assets may include equities, fixed-interest securities, property, money market instruments, cash and derivatives. The fund will have a cash benchmark of 3 per cent above the three-month Libor, which gives it greater flexibility than funds that are benchmarked against an index.

Lead fund manager Ken Adams has 15 years’ experience in managing absolute return portfolios internally for Swip. He joined the company in 1987 and as Swip’s head of global strategy and chairman of its policy group, is responsible for asset allocation strategy on all Swip’s multi-asset portfolios.

The company’s new recruit, investment director Takashi Saito, will assist Adams. Saito has 18 years’ investment experience and previously managed equity portfolios using long/short and hedging strategies as principal of Aesop Capital UK.

Adams and Saito can access asset classes directly or indirectly through exchange-traded funds and derivatives such as futures and options. Forward currency contracts, which are an agreement to buy or sell a currency on a specific date in the future, can be used to alter the currency exposure of the portfolio. This means that if the managers expect one currency to weaken against another, they can hedge exposure to the weakening currency by selling it.

Derivatives can also be used to enhance returns and limit volatility where the fund managers have a view on the direction of markets or individual securities. This enables the fund to make money even if markets and securities are falling.

The fund managers will draw on top-down research that covers the economic outlook, market valuation and market sentiment. This information is combined with computer-based portfolio construction to determine the most appropriate asset mix. These will be assets that can achieve the target return without unnecessary risks.

Swip says there is investor demand for regulated funds that have some of the characteristics of hedge funds. However, the fund managers need to very risk aware as they have fewer constraints than conventional funds.


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