Q.What is the basic approach to managing the fund?
The Team seeks to exploit market inefficiencies through continuous and rigorous analysis of fundamental data deemed to drive the performance of Global equities. The stock selection criteria provide diversified alpha sources and these are in turn weighted in a dynamic manner in accordance with the current market environment.
Q. Are there any particular market conditions that suit your fund?
The dynamic and flexible nature of our repeatable investment process is designed to accommodate the cyclicality of stock selection criteria and embedded style bias by constructing a portfolio on the basis of blending five fundamental stock selection components; such that investors should capitalize on opportunities in most market conditions. Rather than weighting our portfolio by region, industry or stock, we primarily seek to rotate the investment themes within our portfolio in order to take advantage of the prevailing market environment.
Q. Why is holding absolute return funds important for low risk-profile clients?
Absolute return strategies can offer lower risk investors consistent returns without exposing them to higher levels of volatility normally associated with the underlying equity market. In terms of this particular strategy it is worth emphasizing that risk management is an integral part of the portfolio construction and rebalancing process. Using a proprietary risk model the portfolio managers can ensure that the expected risk of the portfolio is in line with the risk target of the fund, taking into account risk at both the stock selection criteria level and stock specific level. The portfolio is managed in accordance with a series of constraints on a regional, country, sector industry and stock level, while targeting a volatility level which is less than that expected of the broader underlying equity market.
Q. What strategies have been the most successful and unsuccessful over the past twelve months?
All of our strategies have enjoyed impressive performance both relative to their respective benchmarks and peer groups of the course of the past 12 months (30.6.14). In respect of GEAR positive performance was predominantly achieved as a result of good stock selection, which is in line with the fund manager’s expectations. Returns across economic sectors were reasonably well spread with the best returns coming from consumer related sectors, IT, industrials and healthcare. Positive returns were seen to all regions in which the portfolio invested, with Europe and North America the strongest. Returns from the perspective of stock selection criteria also showed a broad spread, with four out of five stock selection components positive. The spread of returns was consistent with the low volatility environment.
Q.What are the main challenges which will be faced by the fund in the next one to two years?
As we move into the next 12 months, the market currently remains in a very low volatility state with generally positive direction. However it is notable that the market remains cyclical at a style level. There has also been a move to a more neutral risk appetite standing in Europe, Japan and Asia which suggests investors remain nervous with binary and highly unpredictable political and macroeconomic events chipping away at investor confidence. We remain convinced of the likelihood market volatility will rise from its current low levels.
This communication does not constitute a recommendation. It is for general information for the recipient only, and is not for onward distribution. Please remember that past performance is not a guide to future performance. The value of investments and the income from them can go down as well as up and investors may not get back the amount originally invested.