Ban on shorting leaves retail funds unaffected

Retail fund managers are largely unaffected by the ban on short selling in financials stocks, according to a report by Standard & Poor\'s (S&P). The study, published last week, examines the impact of the ban on several absolute return and 130/30 portfolios.

Retail fund managers are largely unaffected by the ban on short selling in financials stocks, according to a report by Standard & Poor’s (S&P). The study, published last week, examines the impact of the ban on several absolute return and 130/30 portfolios.

Funds analysed include BlackRock UK Absolute Alpha and Cazenove UK Absolute Target, both of which operate market-neutral strategies. According to S&P, Mark Lyttleton’s Black- Rock portfolio is long on financials and is therefore unaffected.

The fund was short on banks in the third quarter. However, this strategy, in combination with long positions in resources, detracted from performance. Speaking on the impact of the ban, Lyttleton said that because of its temporary nature it would have no significant effect on the long-term strategy of the fund.

Tim Russell, manager of Cazenove UK Absolute Target, is also long on financials, with further long positions in defensive stocks and consumer services. Short positions include commodities, industrial cyclicals, housebuilders and technology. Russell is considering expanding his long positions in out-of-favour consumer stocks.

The report also looks at the impact on pan-European 130/30 funds from Invesco and JP Morgan, and Sarasin’s Equisar IIID portfolio. According to S&P, both 130/30 funds are ensuring they comply with various regulations imposed across Europe.

Invesco Pan European 130/30 Equity held a 4% short position in financials at the end of August, but the fund expects to introduce shorts in other sectors gradually.

The Sarasin fund, run by Harry Talbot Rice, takes a cautious stance on financials, given the possibility of further credit write-downs. At the end of August the fund was diversified through five investment themes and was 50% net long.

Randal Goldsmith, a director at S&P, says he is surprised the ban has not had a greater impact.

“The main point is that it affects financials but not the whole of the market,” says Goldsmith. “A lot of managers are already short financials, and they do not want to go any further short. Where it will make a difference is when they want to increase those positions.”