Ensure positive returns with Henderson UK Absolute Return

IC Top 100 Fund Henderson UK Absolute Return (GB00B5KKCX12) has proved its ability to do this, having delivered positive returns in each of the past five calendar years in line with its objectives. It is also among the top-performing targeted absolute return funds over three and five years in terms of cumulative total returns.

The fund is managed by Ben Wallace and Luke Newman, who have a history of outperformance. According to FE Trustnet data Mr Wallace delivered a cumulative total return of 70.6 per cent over 10 years, compared with 39 per cent for a composite of his peer group. Mr Newman delivered a cumulative total return of 39.4 per cent over 10 years, compared with his peer average of 19.5 per cent.

"The strategy and the team have a 10-year track record running another identical mandate," say analysts at research company FundCalibre. "During that period the returns have been remarkably consistent. Unlike many of its sector peers this fund has achieved its stated aim, which is to provide equity-like performance, but with one-third the volatility."

The fund runs a long/short equity portfolio, which means it is able to make money from both rising and falling share prices. Long positions are held directly through shares or derivatives, whereas short positions (betting on a share price falling) are held through derivatives such as equity swaps and futures.

Ryan Hughes, head of fund selection at AJ Bell, adds: "[The managers'] risk-controlled approach is attractive for those wanting to have some exposure to equities but without taking all of the risk that comes with buying a traditional equity fund. If UK equities perform well this fund will be left behind, but should things get ugly, [the fund's managers] have proved on many occasions that they are great at protecting investors' capital."

Two-thirds of the fund portfolio is made up of short-term tactical positions, which are often held for less than three months, while the remaining third is in core positions selected for a longer time horizon. For the tactical positions, the managers look for stocks that will either exceed or fall short of investor expectations. They do this by looking at factors that could affect share prices, such as news announcements, index changes, and broker upgrades or downgrades. For the longer-term positions they aim to identify stocks with long-term drivers that will either increase or decrease the share price over time.

Some of the fund's core long-term positions include information and analytics provider Relx (REL), pest control company Rentokil (RTO) and security company G4S (GFS). The managers have recently added tactical short positions on Scandinavian engineers, which they believe are exposed to oil, gas and commodity capital expenditure budgets, so are likely to remain under continued pressure.

Henderson UK Absolute Return has a performance fee and an ongoing charge of 1.06 per cent, which is higher than that on a number of open-ended funds. It is also likely to lag conventional equity funds in rising markets.

However its consistent returns mean investors are well compensated for its fees, and the fund has met its aim of providing downside protection in difficult times.

So if you're looking to mitigate the likely volatility ahead, Henderson UK Absolute Return Fund's consistent performance and tried-and-tested strategy suggests it is well-placed to capitalise on any market instability. Buy. EA.

Source: Morningstar as at 13/06/17, *Henderson as at 31/05/17

Annual returns (%)

Source: Morningstar as at 31/05/17

Cumulative returns

Source: Morningstar as at 13/06/17

Top five holdings as at 31/05/17 (%)

Source: Henderson

Sector breakdown as at 31/05/17 (%)

Source: Henderson

IC Tip rating