The Threadneedle (Lux) European smaller companies absolute alpha fund aims for absolute return over 18-24 month periods, but this is a target not a guarantee. It is targeting returns of 8 to 10 per cent a year after charges over a market cycle.
As a Ucits III fund, it can go long and short, which enables the fund manager to benefit from stocks that are falling in value as well as those that are rising.
Long positions can be taken by investing directly in the equities of European smaller companies and in derivatives but under Ucits III rules, short positions in the fund are created synthetically using derivatives.
Lead fund manager Philip Dicken has over 13 years’ smaller companies experience and is used to long and short investment strategies. He has managed the long-only Threadneedle Pan European Smaller Companies Fund since launch in November 2000 and is supported by team of 23 European specialists.
Dicken will typically have 50 to 100 holdings in the portfolio that are selected on the basis of in-depth research and valuation. He will invest along similar lines to Threadneedle European Smaller Companies Crescendo, a hedge fund managed by Dicken, which is now closed.
Threadneedle sees the Ucits III structure as a way of attracting a broader range of investors, in that it brings the advantages of regulation, liquidity and transparency to the table.
Funds that provide specific exposure to European smaller companies within an absolute return mandate are harder to find and have higher risks than funds with a broader remit such as the Argonaut European absolute return fund and Gartmore European absolute return fund.
The Dublin-based Ennismore European smaller companies fund is an established absolute return fund with a strong track record since launch in 1999. However, it is capped in size and capacity is limited, so the Threadneedle fund may be a welcome alternative.