Invesco has launched a US equity market neutral fund, its second hedge fund, for UK and European inv...
Invesco has launched a US equity market neutral fund, its second hedge fund, for UK and European investors.
The Ireland-domiciled and listed Invesco Equity Market Neutral fund aims to provide an annualised return of 10%, which is 8 percentage points above US T-Bills" 2% (gross of management and performance fees), with an annual volatility of about 10%.
The fund is to invest in large and mid-cap US equities using in-house, quantitative-based stock selection tools and Barra risk software. The approximate number of holdings are about 90 long and 140 short, with a turnover of 150%. The maximum stock position size is +/-4% either long or short and an industry over/underweight flexibility of +/- 4% long versus short.
This fund is an extension of equity market neutral accounts, worth $1.3bn, which Invesco has offered in the US for more than 11 years and the fund will be led by Don Young, who heads a team of 56 based around the world.
Brett Bastin, head of product development for absolute return strategies at Invesco, says: "This strategy, which is a modification of one of the elements of the Invesco Absolute Return fund, the first hedge fund, seeks to deliver returns independent of equity market direction."
The $75m Invesco Absolute Return fund was launched outside the US in October 2002 and returned 10.1% net of all fees to 31 December.
The Absolute Return fund combines equity market neutral and financial futures strategies. But the new fund has higher risk weightings - +/- 4% instead of 1% for the Absolute Return fund - in a bid to boost returns, but which also adds to risk.
Bastin added: "While there has been a pick-up in the equity market, many investors recognise the convergence between traditional long-only investing and investing in absolute return strategies. Launching a pure equity market neutral fund is well-timed to meet demand from investors who seek the benefits of an absolute return strategy that offers low drawdown and low correlation to traditional asset classes, or from investors who seek an alpha which can be ported to the index or benchmark of their choice."
The target Sharpe ratio (gross of fees) is 0.8, with a maximum drawdown (hypothetical) of 11.2% and a normal cash reserve of 15%. Dollar, euro and sterling share classes are available. The management fee is 1% to 1.5%, while the performance fee is 20% of new profits above hurdle.
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