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New F&C Ucits fund to target absolute returns with low volatility

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F&C Asset Management has launched a Luxembourg-domiciled Ucits III fund that will target net annual returns of between 2 and 4 per cent over short-term money-market rates with low vola

F&C Asset Management has launched a Luxembourg-domiciled Ucits III fund that will target net annual returns of between 2 and 4 per cent over short-term money-market rates with low volatility.

The firm believes the F&C Active Return Fund will be attractive to investors seeking alternatives to traditional and volatile asset classes, such as equity and bonds, which have exhibited increased levels of correlation to each other in recent years.

The fund, which will be co-managed by Stephen Crewe and Chris Childs of F&C Alternative Investments, will use some of the derivative strategies employed on existing products managed by the team, including a hedge fund, supported by an independent risk system.

Unlike a traditional hedge fund, the F&C Active Return Fund will have daily single pricing, a simple fee structure and daily liquidity through an open-ended Sicav fund structure. The fund, which has both sterling and euro share classes, will offer access to a set of alternative investment strategies to potential investors including discretionary portfolio managers, multi-managers and institutional investors.

The fund will invest in a portfolio of derivatives based on developed market equities, predominantly in Europe and the US, with a bias to larger cap indices where liquidity is greatest.

The team, who have worked together managing derivative investment strategies for 13 years, will blend a quantitative framework with a qualitative appraisal of markets. The underlying philosophy of the fund will be to target sources of risk premium that have empirically been proven to exist and are believed likely to persist in the future.

The F&C Active Return Fund will target the variables that drive the Black-Scholes option pricing formula published in 1973 by Fischer Black and Myron Scholes, who were later to find more questionable fame as providers of the intellectual underpinnings of Long Term Capital Management.

The fund will invest through three core strategies, market neutral (trading index options), volatility trading (vega, variance trades) and other second order trades such as dispersion, correlation and implied dividends in order to exploit market pricing anomalies.

The fund will also have the flexibility to invest in other non-equity sub-strategies such as portfolio hedging and volatility trading in credit and currencies. The allocation between strategies will vary over time, depending on where the team believes the most value can be found.

Positions will be executed through vanilla instruments traded by multiple counterparties, such as index options, while securities that are complex to value will be avoided. The fund will have a very high weighting, expected to be often in excess of 90 per cent, in liquid investments such as cash, deposits and floating rate notes.

The F&C Active Return Fund has been launched with institutional share classes in sterling (hedged) and euro and a euro-denominated retail share class. Its fee structure includes initial charges of up to 5 per cent and an annual management charge of 1 per cent on the institutional share class and 1.5 per cent on retail shares. The fund is available through private placement pending registration for marketing across various European territories.

F&C Asset Management, which has investment centres in London, Amsterdam and Edinburgh and offices in Boston, Dublin, Frankfurt, Geneva, Hong Kong, Lisbon, Paris and Stockholm, traces its origins back to 1868 with the launch of the Foreign & Colonial Investment Trust, the first-ever publicly-listed investment fund, which remains a client of F&C.

The firm managed GBP96.5bn in assets at the end of June in equities, bonds, cash and property as well as alternative and specialist product classes such as socially responsible investment funds, hedge funds, funds of hedge funds, private equity funds, global tactical asset allocation products, enhanced alpha funds and liability driven investments, on behalf of institutional, insurance and retail clients.

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