38
FEATURE FUND LINKS FORUM 2008
Investment stream
James Tothill,
New Star Asset
Management
“
When investors
are looking to protect
downside, why not
expand the concept
to the traditional
market neutral
hedge strategy?
Chris Taylor,
Neptune
Investment Mgt
Wouter Weijand,
Fortis Investments
while the ten-year figures
were 3.1%, 3.3% and 2.5%.
But year to date to the end
of July, the returns were far
less attractive. Equities had
fallen 16.6%, gilts 0.8% and
cash was up 0.7%.
He said agriculture may
be a good area for thematic
investment, citing the
example of wheat, which
was historically cheap now
compared with the past 30
years and had seen less
upturn than other investments
such as gold, oil and
UK housing.
Cole said that from a
macroeconomic investment
point of view, Barings was
looking for above-trend
growth in equity markets,
countries with current
account and budget surpluses
and contained inflation.
He highlighted Russia,
the Middle East, Brazil and
China as being earnings
and re-rating opportunities.
He said prime themes
were currency volatility,
commodities and avoiding
debt at all costs.
Paul Temperton, global economics
specialist with Tier
Co, speaking on behalf of
Invesco Perpetual
Temperton posed the
question “Are we nearly
there yet?” In essence, his
response was: “In some
ways, yes; in others, no.”
He made a distinction
between the adjustment
taking place in world
equity markets and that
of economies such as the
Andrew Cole,
Baring Asset
Management
US, UK and Europe. In
equity markets, we could
be “nearly there,” he said,
in that the bear market is
now 11 months old and is
starting to look “long in the
tooth” by historic terms.
What is more, he said,
Invesco Perpetual’s experts
shared Anthony Bolton’s
view of the significance
of the fact that the trailing
dividend yield on the
FTSE All-Share Index has
exceeded the yield on a
ten-year gilt for the first
time since March 2003,
which is considered to
have been the bottom of
the last bear market.
Andrew Yeadon, head of
multi-manager at Schroders
During a jargon-busting
talk aimed at taking the
mystery out of expressions
used in typical conversation
by most fund managers
yet rarely understood
by anyone else, Yeadon
described what these actually
mean.
He noted that portable
alpha, a technique used to
separate the alpha and beta
components of a fund’s
returns, is increasingly
being used in the institutional
investment market,
and is an expression “you
will hear more about in the
fullness of time”.
He went on to say that
he avoids funds with performance-related
fees “like
the plague”, one reason
being that they are typically
explained as being an
Paul Temperton,
Tier Co
”
INTERNATIONAL ADVISER [www.international-adviser.com] OCTOBER 2008
Andrew Yeadon,
Schroders
incentive aimed at aligning
the interests of a fund’s
manager with those of his
or her investors.
“I always say, ‘Thank
you for telling me. I did
not realise they were not
aligned before,’” he said.
Yeadon said he also
thinks that if fund managers
are entitled to a bonus
on achieving a certain
performance target, they
should also be willing to
give back a percentage to
investors if they fail to
achieve a certain level.
Alex Tarver, product specialist,
emerging markets,
Halbis, HSBC Global Asset
Management
Although the Middle East
and North Africa (MENA)
region is dominated by
the oil industry right now,
investors should bear in
mind that it will be less so
in the future, Tarver said.
Among the growth areas
he sees there are infrastructure,
financials and
the various goods needed
by a growing and increasingly
affluent population.
He observed that all
the construction activity
in places such as Dubai,
for example, was needed,
as these cities “catch up”
with “two decades of [capital
spending] underinvestment,
and the ex-patriot
workforce, attracted by the
burgeoning regional economy
and slowdowns elsewhere,
explodes”.
He added: “The Gulf is
Alex Tarver, HSBC
Global Asset
Management
Howard Fyer,
Fidelity
International
overhauling its entire economic
base.”
But Tarver noted that a
difficulty for investors was
the fact many MENA markets
limited foreign ownership
of local companies.
Howard Fryer, sales director,
Fidelity International
According to Fryer, the
problem with absolute
return products was that
their strategies are very
varied and the variation in
returns is also very wide.
He said the trick was
to understand exactly what
the underlying strategy is.
Everyone is now familiar
with Active Extension
funds (for example, 130/30,
150/50). But the principle
of active extension does not
generally attempt to ensure
zero losses – it tries to add
alpha on both sides.
When investors are
looking to protect downside,
why not expand the
concept to the traditional
market neutral hedge strategy?
By balancing 100%
long with 100% short, you
can get a strategy that has
very low correlation with
any other, where expertise
of equity fund managers
can still be used to add
value but without the risk
of a general market fall
damaging performance.
Fryer’s message was
clear: he suggested that
the delegates think very
carefully about adding
market neutral funds to
their portfolios.
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