Five-prong strategy reaps rewards

Absolute Insight aims to provide positive returns over 12-month rolling periods, a strategy that has showed its strength in an ability to preserve investors’ capital in falling markets.

Absolute Insight was launched in February 2007 just as the financial crisis took hold of markets.

Sonja Uys, portfolio manager specialist investments at the firm and co-manager of the fund, says the ability to preserve capital in those early years highlighted the strength of the strategy.

“We are a fettered fund of funds containing five different strategies – equity market neutral, currency, emerging market debt, long/short equity and liquidity,” she says. “People have different definitions of absolute return, but we aim to provide positive returns over rolling 12-month periods.”

The fettered structure of the fund means that Uys and Reza Vishkai, her co-manager, can access the underlying managers at short notice and have good visibility of the positions within the portfolios. It also means that there is only a single layer of fees.(Fund of funds continues below)

To ensure the fund is meeting its investment aims, Uys says it is fundamentally important to have a robust approach to risk.

“We take a multi-dimensional approach to risk,” she says. “We have an investment committee, which reviews the portfolio on a monthly basis.

“We also have a front office-based quantitative risk team who work closely with the managers and provide an extra layer of risk monitoring.”

Although the fund has lagged equity markets since the rally in 2009, its return of 22.11% over three years beat the IMA Absolute Return sector average return of 15.19%. Indeed, over five years the fund remains comfortably ahead of the FTSE 100, returning 25.77% against a 13.39% from the index.

Of course, such comparisons are largely erroneous. The sector is far from homogenous in terms of strategies and Uys is keen to stress that both the fund and the underlying portfolios are benchmarked against cash, not an index. She says that during strongly rising markets the fund is expected to lag equity indices but should also preserve investor capital during market falls.

Within this, each of the five strategies is expected to contribute to performance.

Last year, for example, the equity market neutral fund topped returns, but this year the emerging market debt fund has so far led the way.

In terms of market outlook, the Insight team have been heartened by the European Central Bank’s liquidity injections into European banks.

“We feel there is a recovery in global growth, but there remains some tail risk in Europe,” says Uys.

”We feel there is a recovery in global growth, but there remains some tail risk in Europe”

“In terms of currencies, we think this might be time for a period of dollar weakness as the global recovery reduces its appeal as a safe haven and the impact of monetary easing starts to be felt.”

The team is also keen on some of the unloved sectors in the market, including financial sector debt.

There has been considerable fear surrounding the banks over recent months, but falling prices have meant some opportunities might present themselves.

Click to enlarge

Whatever the immediate future offers for the global economy, it appears the £350m Absolute Insight fund is earning its stripes.

Having faced down extreme market conditions, the test might now be how well the fund copes if predictions of a low-return, high-volatility environment prove accurate.