Baring Asset Management has opened its Baring European Smaller Companies Absolute Return Fund, launched late last year, to external investors.
‘While both European macro-economic data and earnings growth prospects remain positive, equity markets are now experiencing sharply higher levels of volatility," says Nick Williams, manager of the Baring European Smaller Companies Absolute Return Fund In this context, this fund is ideal for investors who wish to generate good positive returns in an uncertain market. A long/short equity approach allows us to take advantage of our superior stock selection in the region, whilst providing a degree of downside protection.’
The fund focuses primarily on small and medium sized companies. Barings are long term investors in the European small and mid cap sectors and believe they have strong growth potential over the long term. Nick Williams explains the investment strategy behind the fund:
‘We believe that stock specific factors have far more impact on the share prices of small/mid cap companies than their larger counterparts. We use index futures to reduce market risk and use our individual stock positions to generate consistent levels of alpha. Our style is pure bottom up and the portfolio is built entirely from an absolute return mind-set. Each long and short equity position is picked to make a positive contribution to the portfolio.
‘Our investment style leads us to favour going long low beta, steady growth stocks and shorting expensive companies that we believe are overstretched on a valuation basis. The portfolio will hold an average of 70 long positions and 35 shorts.’
Barings believes that a number of structural inefficiencies exist in the European small cap market, which can be taken advantage of. For example, the under-researched nature of the sector can result in opportunities to exploit this information gap and generate potentially high levels of alpha. The developed European markets are currently experiencing an increasing number of new listings of smaller companies, broadening the spread of available investment ideas. In addition the positive impact of the EU’s eastward expansion, is providing cost-cutting and demand-boosting opportunities for a wide spread of European companies. Barings believes the ability to analyse these markets and identify the individual stock opportunities can add significant alpha to the fund.
Ian Pascal, Marketing Director at Baring Asset Management, said: ‘We have a long history of investing in European small and medium sized companies and have delivered strong and consistent performance to investors in the region. This fund is a natural extension of the skills of the team. I believe our history and experience in the region gives us a key competitive edge in these markets’
The fund, which aims to deliver returns of approximately 12% p.a. with low volatility, was established on 3 November 2005 with internal investment and has delivered strong risk adjusted returns since launch, having generated positive returns each month, even in falling markets. Cumulative returns are 8.17% with average volatility of 2.56% per month. (Source: Baring Asset Management, as at 31 May 2006. Nav per share basis (USD). Past Performance does not guarantee future results). Minimum Investment is EUR 200,000 or USD 250,000. Initial charge of up to 3% and AMC of 1.5%. Performance Fee of 20% of increase in NAV.
Barings manages a range of absolute return products including hedge funds, funds of hedge funds and long/short mutual funds. In total the company manages over USD 900 million in these products. As at 31 May 2006, Barings managed over USD 1.2 billion in funds focusing on small and mid cap European equities.
The Baring Europe Select Trust, also managed by Nick Williams, has been in the top quartile over three and five years and second quartile over one year to end May 2006. The same fund has GBP 335.0m under management and year to date has delivered 12.6% vrs the benchmark 11.8%. Over one year it returned 40.3% vrs the benchmark of 37.0%, and over three years it returned 144.2% vrs the benchmark of 128.5% *
