Strong start belies tricky conditions

Uncertainty and volatility look set to stay in markets, but Richard Sherwin, the manager of IFSL Blacksquare Multi-Manager Absolute Return, is adopting a wait-and-see approach.

After a difficult summer Richard Sherwin, the manager of the IFSL Blacksquare Multi-Manager Absolute Return fund, might have hoped for a quiet end to 2010.

Sadly, a fresh round of quantitative easing in America and renewed sovereign debt fears in the eurozone combined to ensure this was not the case. The pick-up in volatility, particularly over November, gave the portfolio a stern test over the past few months.

“In November we had a couple of interesting developments in the market,” Sherwin says. “There was a sharp risk-off trade primarily in the foreign exchange and bond markets. Our systematic funds were impacted along with the GAM Star Emerging Market Rates fund also taking a hit.” (article continues below)

The announcement on November 3 that the Federal Reserve plans to pump as much as $600 billion (£378 billion) of extra liquidity into the market through a programme of asset purchases took its toll on currency markets.

Critics of the policy suggest it is being used as a tool to artificially reduce the value of the dollar relative to other currencies to boost exports, although the Fed claims its primary purpose is price stability and aiding employment.

While there have not been wholesale changes within the portfolio, the year’s events have forced the manager into making a few changes. In August both the BlueCrest BlueTrend Ucits fund and Gartmore UK Absolute Return fund were in the top 10 holdings within the portfolio. Both, however, have since been removed.

“We have a super portfolio of 24 funds that we narrow down to the 13 we hold in the fund portfolio so there are always alternatives if we have any due diligence issues,” Sherwin says.

“The BlueCrest fund was shut to new investment and so if we added to any of our other positions our holding in the fund could drop below 5% making it ineligible for our portfolio.”

On the Gartmore fund, managed by Ben Wallace, Sherwin says he still rates both the fund and manager but concerns over the group have meant that he has adopted a wait-and-see approach to it.

The Blacksquare fund has £15.7m under management with further commitments due to take it up to £22m by June. Sherwin says he has been pleased with the response so far but says interest should grow once these products become better understood.

“Where I think we’re getting traction is from investors looking for cash plus type returns. We think this strategy should be judged against a cautious managed or a bond fund benchmark,” he says.

Since its launch last February the BlackSquare fund has returned 0.86% to December 14, 2010.