Citywire Selector quizzed leading lights on their long/short allocations. In this latest edition of Selector Snapshot, we touch on what happens when a sector’s star players are off limits.
Selectors: Thierry Crovetto & Pierre-Yves Dittlot
Company: TC Stratégie Financière (Monaco)
Long/short equity is certainly the most important category within alternative strategies. However, over the last 12 months, two-thirds of long/short equity funds had a negative return and their average return was -3.7% within a wide range from -36.5% to +13.9%.
Most of the funds suffered from the sector and factor rotation during the first quarter of this year, but few of them recovered properly after.
In addition, the best funds are very often closed to new investors, such as Exane Overdrive, BSF European Opportunities Extension (now re-opened), Schroder European Alpha Absolute Return (now re-opened) or Nordea Stable Equity Long Short.
Our quantitative screening model is based on the ratio of performance/ absolute maximum drawdown on different time frames, in order to select the fund offering the best risk-adjusted ratio. We complete this quantitative analysis with a qualitative one, where we assess the investment process, risk management, communication and team skills.
Of the funds still open to new investors, UK companies manage the three best strategies in this category. Old Mutual launched its UK Specialist fund this year, a long/short strategy specialising in UK small and mid-caps UK managed by Tim Service. This is a Dublin-domiciled mirror of its Cayman-registered fund, which has a long track record. It’s certainly one of the best in the space.
We also continue to like the Henderson Gartmore UK Absolute Return fund, managed by Luke Newman and Ben Wallace. However, this strategy is becoming very big, and the managers have enlarged their brief to non-UK equity, to include Europe and the US.
Finally, we recommend the Jupiter Absolute Return fund, which has been managed by James Clunie since September 2014. The strategy has a very good risk-adjusted return, but its equity beta and corporate bond beta over the last 52 weeks, are slightly negative. The fund is therefore very useful in portfolio construction.