The global absolute return sector will need to re-assess its offerings, according to Kevin McConnell, Head of the team that manages the Dublin-domiciled Bloxham Midas Global Absolute Return Fund, which is shortly to launch a sterling share class.
McConnell points out that with only 25 per cent of the sector in positive territory in 2011 and high volatility continuing to impact the global macro environment, 2012 is set to be equally as difficult for the sector.
“Asset allocation for 2012 represents one of the toughest challenges to the investment community in decades. Core bond markets have been losing credit quality but benefiting from the “safe haven” trade against a deteriorating equity market. The move to “alternatives” is likely to accelerate as investors decrease long equity and long bond allocations,” added McConnell.
McConnell says that correlation within the equity market continues to run at historically high levels, reflective of extreme single directional movements seen at indices level.
“Whether driven by the loss in market fire power of the long only equity funds or the ever increasing influence of ETFs on market movements, the benefits of diversification across the equity market subsectors are decreasing.
Using a range of complex technical indicators to drive investment decisions on market exposure and stock selection, Midas’s approach has proved exceptionally resilient in generating return in tough markets. The Bloxham Midas Global Absolute Return fund produced a 12% return over the 12 months to December 2011. The Dublin-domiciled UCITS III fund plans to launch a sterling share class.
“The maximum net long or short exposure of the fund is 30%, and the fund’s design acts to benefit from market volatility by holding strong cash levels (minimum of 30%), actively trading oscillations in stocks and positioning for prolonger positive or negative trends in the market,” explains McConnell.
Uncertainty over the future of the Euro, global sovereign debt and the quality of global economic estimates, leave the expected market performance for the next 12 months fully dependent on the impact of significant future intervention.
However, with the threat of rating downgrades, the room for intervention is becoming more and more limited, reckons McConnell.
The Midas Global Absolute Return Fund trades in liquid large cap stocks in Europe and the US. There is an annual management charge on the retail share class of 1.5%. There is no initial charge. There is a performance fee of 10% on a hurdle rate of 3% net of fees.
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