While it is difficult to compare funds within the sector given their very different natures, it is worth pointing out that the £6.7bn Old Mutual fund made a 50.9% return over the whole period we examined, while the average absolute return portfolio was up 16.3%.
Managed by Ian Heslop, Mike Servent and Amadeo Alentorn, the Old Mutual fund’s process focuses on five stock selection criteria the team believes can generate alpha over time: dynamic valuation, sustainable growth, analyst sentiment, company management and market dynamics.
A key aim of the fund is to avoid being overly biased toward any one style and the portfolio is constructed to keep it market neutral by not taking bets on the market’s direction, with no preference for a country or an industry.
As demonstrated by its track record, the fund’s process of focusing on specific sources of alpha – and dynamically adjusting their influence on the portfolio depending on what is in favour in the market – has proved effective in generating returns in very different market conditions.
The FE Invest team has Old Mutual Global Equity Absolute Return on its list of approved funds, arguing it is an “excellent diversifier” because its capacity to outperform is not reliant on traditional sources of alpha.
“We believe the fund should continue to maintain its capacity to deliver positive performance, with no attention paid to market direction.
“We also believe the fund should maintain its zero correlation to global equity markets in the short term,” the FE Invest team says.
“Performance depends on the portfolio’s positioning towards these five sources of alpha, according to prevailing market conditions.
“As a result, the fund can suffer from short periods of underperformance if there is a rapid change to the market environment, because it takes four to six weeks for the portfolio to adjust.”
Although Old Mutual Global Equity Absolute Return is the only fund to avoid losses in our study, others have come close.
David Hambidge, Ian Rees, David Thornton and Simon Evan-Cook’s £168.1m Premier Multi-Asset Absolute Return was in loss-making territory for just one of the periods we looked at, and even then it was down by just 2 basis points.
It made 24.8% between 1 June 2011 and 30 April 2017.
