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Specialisation is key to finding alpha, says fund selector

That’s the Henderson Gartmore UK Absolute Return Fund, a long/short UK equity fund run by Luke Newman and Ben Wallace since 2009. Strojny has been invested in the fund since 2011, when Gartmore was acquired by Henderson.

Their specific focus on UK equities is one of the reasons the fund appeals to him. “We tend to select managers for our absolute return bucket, who are specialised in a niche asset class or specific geographic area, and stand out with their investment philosophy,” says Strojny. “We also use a quantitative risk premia fund, for example,” he adds.

Brexit opportunities

For many European investors, a UK equity fund is a rather unusual investment. Most of Strojny’s peers shy away from investing in UK-focused funds, especially since the Brexit vote.

But for the Frenchman, Brexit-related volatility has only made the Henderson Gartmore UK Absolute Return Fund a more appealing investment. It has turned the UK stock market into a stock pickers’ eldorado, he believes.     

“Brexit has increased the dispersion within the UK equity market, distinguishing between winners and losers of Brexit. I think an unconstrained long/short fund should be able to benefit from this, and generate alpha,” says Strojny.

But wouldn’t it be unwise to place a UK equity fund in your absolute return bucket when Brexit-related uncertainty abounds? That’s why Strojny insists on his pick being “truly unconstrained”, avoiding a structural long-bias.

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“There are a lot of managers who have a structural long-bias and only actively manage their long book, not their short one. The Henderson Gartmore Fund has active long and short books, and they also manage actively their net exposure, which has even been net negative at times.

“The result is really low volatility and reduced drawdowns,” says Strojny. Over the lifetime of the fund, drawdowns in excess of 2% have indeed only occurred a handful of times.

Paying up for performance

And, very importantly, the fund doesn’t have any correlation with the UK equity market either (see graph). The fund has avoided the Brexit-related volatility that characterised the FTSE 100 in 2016 though, arguably, it hasn’t made much of a return either: it has returned only 1.5% over the past year, meaning investors are losing roughly half of their gross return to management charges. And on top of this comes a 20% performance fee.

Though the latter has a high watermark, the hurdle for the performance fee to be activated is not incredibly ambitious: for the euro-hedged share class, it’s the ECB’s main refinancing rate of -0.4%…. 

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