Protect against Brexit with Henderson UK Absolute Return

This IC Top 100 Fund is designed to deliver positive returns (returns greater than zero) regardless of market conditions. It does that by taking long and short equity positions, and investing in derivatives to benefit from both rising and falling markets. Rather than concentrating on long bets - ie buying stocks they expect to do well - the managers of Henderson UK Absolute Return mix long equity positions with short equity positions (bets on the price of a share falling). That means the fund should be able to profit whether markets are soaring or plummeting.

The EU referendum vote is likely to hit a wide range of asset classes in the short term, and the unpredictable result makes it hard to tell which areas to back over the medium and longer term. And a possible Brexit - a UK departure from the EU - is not the only challenge that could trigger market turmoil in the coming months. Fears over a slowdown in China and a shaky oil price could yet mean a need for greater protection in your portfolio, making this fund a good long-term bet well beyond the EU referendum.

Henderson UK Absolute Return is a good option for militating against downside rather than generating large returns, and it has done this very well. Since its first full calendar year of performance in 2010 returns have never fallen below zero, and nearly every year it has exceeded the Investment Association (IA) Targeted Absolute Return sector average.

But it has also made good cumulative returns: over three years the fund returned 22.1 per cent, far higher than the FTSE 100's 2.4 per cent and its sector's average of 6.5 per cent.

It has also demonstrated low volatility and far smaller peak-to-trough falls (losing far less for investors who bought at the best possible time and sold at the worst) than its peers over the short and longer term.

Research site FundCalibre says: "Returns have been remarkably consistent. We like this fund as, unlike many of its sector peers, it has achieved its stated aim, which is to provide equity-like performance, but with one-third the volatility."

The way in which funds in the Investment Association Targeted Absolute Return sector generate returns can be highly complicated. However Henderson UK Absolute Return's equity-focused approach is more straightforward. It combines a core of long equity positions - typically one-third of the fund - with a tactical book of short positions. The long book comprises companies where the earnings and dividends are expected to grow.

Short positions are taken in companies expected to suffer from an event affecting their long-term earnings power.

The top five stocks held in the fund in asset terms include Aviva (AV) and Legal & General (LGEN). The fund's managers believe that insurers will continue to perform strongly due to their ability to pay out consistent dividends.

The fund charges a performance fee, and with this added in its reasonable ongoing charge of 1.06 per cent rises to a heftier 1.96 per cent.

However, charges are typically higher on funds which use hedge fund style techniques, and unlike a number of its peers this fund has protected investors assets and made good returns. So if you want to protect your portfolio against market volatility around the EU referendum and beyond, Henderson UK Absolute Return remains a reliable option. Buy.

Source: Morningstar, as at 17.05.16. *Henderson

Performance (cumulative % returns)

Source: FE Analytics, as at 17.05.16

Discrete annual performance

Source: FE Analytics, as at 17.05.16

Source: Henderson, as at 12.04.16