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Preserve wealth with Old Mutual Global Equity Absolute Return

Old Mutual Global Equity Absolute Return has made positive returns every year since its launch

Preserve wealth with Old Mutual Global Equity Absolute Return

After a period of unusually smooth markets last year volatility and risk have picked up. And this could continue for some time as geopolitical tensions are running high, and there are fears of a trade war between the US and China.

Tip style
Growth
Risk rating
Medium
Timescale
Long Term
Bull points

Potential downside mitigation

Experienced managers

Consistent positive returns

Good risk/reward profile

Bear points

Expensive performance fee

"The level of tariffs introduced by the US [on China] are lower than expected and the response from China is very restrained – so far they have expressed a desire to avoid engaging in a full-blown trade war," says Adrian Lowcock, investment director, at Architas. "However, trade wars have a way of getting out of control quickly and President Trump has shown he doesn't like to back down. He has always stated he wanted to address what he sees as unfair trade with China. As such, things could easily escalate before politicians sit down to negotiate a truce. Markets have started to price in the potential impact of a trade war but there is the potential for further sell-offs if things escalate."

Increased market volatility is not good for investors trying to preserve their wealth. But a Targeted Absolute Return fund, such as Old Mutual Global Equity Absolute Return (IE00BLP5S809), could help to mitigate the effect of falling markets.

This fund aims for absolute returns that have a low correlation with equity and bond markets over rolling 12-month periods, and annual volatility of no more than 6 per cent. And the fund has made positive returns in every calendar year since its launch in 2009, over which time its annualised volatility has been 4.6 per cent.

Old Mutual Global Equity Absolute Return also has an attractive risk/reward profile with a three-year Sharpe ratio of 1.38. The Sharpe ratio measures how much return a fund generates for each amount of risk it takes, and any figure above one is a good score.

The fund is run by an experienced and long-standing team headed by Ian Heslop, Amadeo Alentorn and Mike Servent, and supported by additional research analysts. The managers invest in equities which they assess based on their valuation, balance-sheet quality, efficient use of capital, analyst sentiment, growth prospects and supportive market trends. As well as investing in companies where they expect share prices to rise, they also take short positions – bets on a company's share price falling. Doing this means the fund could potentially profit from both rising and falling markets.

The fund's managers take a market-neutral approach which means they aim for its short and long positions to have equal market value, with a zero net-market exposure. Net exposure is the percentage difference between a fund's long and short exposure, and a measure of how much a fund is exposed to market fluctuations. As of 31 March, the fund had a net exposure of 0.3 per cent. It is well-diversified across 820 equities, with 392 long positions and 428 short positions.

Old Mutual Global Equity Absolute Return tends to lag in rising markets. And it has a performance fee of 20 per cent of any returns the fund achieves above the average Bank of England Base Rate, provided the fund's price has increased since the last time a performance fee was paid. The performance fee amounted to 1.65 per cent of the value of the share class in 2017 – on top of its 0.81 per cent ongoing charge.

However, unlike many absolute return funds this fund has succeeded in delivering consistent positive returns, so it could be worth paying for. And if it fails to achieve its hurdle rate the performance fee will not be charged. 

So, if you want to mitigate market volatility, Old Mutual Global Equity Absolute Return Fund's consistent positive returns, attractive risk/reward profile and experienced managers mean that it should be a good way of doing this. Buy. EA.

 

Old Mutual Global Equity Absolute Return Fund (IE00BLP5S809)
PRICE:177pMEAN RETURN:6.03%
IA SECTOR:Targeted Absolute ReturnSHARPE RATIO:1.38
FUND TYPE: Open-ended investment companySTANDARD DEVIATION:3.96%
FUND SIZE:£15.2bnONGOING CHARGE:0.81%
No OF HOLDINGS:820*YIELD:0%
SET-UP DATE:30/06/09MORE DETAILS:omglobalinvestors.com
MANAGER START DATE:Ian Heslop: 30/06/09, Amadeo Alentorn: 30/06/09, Mike Servent: 1/02/11  
Source: Morningstar as at 16/04/18, *Old Mutual Global Investors as at 31/03/18

 

Annual total returns
Fund/benchmark2011 (%)2012 (%)2013 (%)2014 (%)2015 (%)2016 (%)2017 (%)Year to date (%)
Old Mutual Global Equity Absolute Return13.161.5318.439.194.382.426.583.11
FTSE World index-5.7911.8322.3611.294.3429.5913.34-4.43
FTSE All-Share Index-3.4612.320.811.180.9816.7513.1-6.87
Source: Morningstar as at 31 March 2018
Cumulative performance
Fund/benchmark1-year total return (%)3-year cumulative total return (%)5-year cumulative total return (%)
Old Mutual Global Equity Absolute Return10.6320.338.39  
FTSE All Share index2.6316.1842.8  
Targeted Absolute Return sector average1.383.3211.85  
Source: Hargreaves Lansdown/FE

 

Top five long positions as at 31/03/18 (%)
Celltrion 1.1
SK Hynix1.1
Colgate-Palmolive1.0
Facebook1.0
Biogen 1.0
Source:Old Mutual Global Investors

 

Top five short positions by industry as at 31/03/18 (%)
Healthcare-1.1
Consumer staples-1.0
Consumer staples-1.0
Industrials-1.0
Consumer staples-1.0
Source:Old Mutual Global Investors

 

Sector breakdown as at 31/03/18 (%)
Information technology9.7
Health care8.7
Financials4.6
Industrials2.6
Real estate1.6
Utilities-2.1
Consumer staples-2.3
Materials-3.3
Energy-5.3
Consumer discretionary-6.5
Telecommunications services-7.2
Source:Old Mutual Global Investors