Alternative Ucits AAA-rated manager Frédéric Cohen is set to up his exposure to long/short equity funds over the next 12 months as the fund of funds specialist anticipates a move away from credit.
Cohen, who is lead manager on the OFI Palmares Alpha Drive XL fund, said he doubled his exposure to long/short equity funds in his €198 million strategy over 2012 and eyes a further increase in the coming year.
‘We have been something like 20% 18 months ago and we are today something like 40%. We want to increase the number of long-short funds in the future,’ Cohen told Citywire Global.
‘We see that there are some very large valuation differences between stocks and sectors, and we think long/short equity funds will benefit from what we can see in terms of changes to valuation and the markets becoming more rational.’
Discussing long/short equity funds he likes currently, the Paris-based manager named the DNCA Invest Miura fund run by Cyril Freu and Mathieu Picard, the Majedie Asset Tortoise fund and the Cazenove UK Absolute Target Fund under Steve Cordell.
‘All of those funds will benefit from a change in market perception which will see investors remunerated not just for secured growth but also for good quality companies or cheap stocks,’ he said.
These three funds and the French-domiciled money market fund OFI Tresor ISR Part C make up the four largest positions in his 35-fund portfolio at present.
Alternative Ucits funds currently make up 43% of his allocation by fund type, while fixed income funds are his second largest allocation, making up 29% of his exposure.
However, Cohen said he has reduced the number convertible bond funds in his portfolio as he is seeking to reduce the beta exposure in the fund as a whole.
‘We consider there is a huge potential on long-short and alpha strategies, we prefer deploying capital and risk on those strategies rather than on beta strategies which have been very good over the last year,’ he said.
The OFI Palmares Alpha Drive XL fund has returned 15.53% over the past three years. This compares to the average manager in the Citywire Alt Ucits Fund of Funds sector, who has returned 3.9% over the same period.