Edinburgh-based independent fund management group SVM Asset Management believes that the 2009 stock market environment could continue to prove difficult for conventional long only funds
Edinburgh-based independent fund management group SVM Asset Management believes that the 2009 stock market environment could continue to prove difficult for conventional long only funds.
In response, SVM plans to launch the SVM UK Absolute Alpha Fund, a long/short UK equity Ucits fund with a similar investment approach to the SVM Saltire fund, which returned 19.7 per cent in 2008 compared to a fall of 29.9 per cent in the FTSE All Share Index.
SVM is currently seeking approval from the Financial Services Authority for the SVM UK Absolute Alpha Fund. If approved, the fund will have the flexibility to move from a net long to a net short position differentiating it from other absolute return funds.
It will be managed by SVM managing director Colin McLean (photo), manager of SVM Saltire, and his deputy manager will be Hector Kilpatrick. Returns will be driven by stock selection and the net position of the fund will be determined by whether the manager has more long or short stock ideas at the time.
In 2008, SVM Saltire was net short for much of the year as a result of identifying many companies where deteriorating trading, balance sheet weakness or high valuation could lead to a fall in the share price. These short positions were a strong contributor of alpha throughout the year.
The new fund will aim to deliver returns in excess of cash (as measured by Libor) over 12 month periods, and to substantially beat cash over all three year periods. Through a full market cycle SVM expects to outperform the FTSE All Share Index. The focus will be on generating positive returns over the long term rather than positive performance each month, as such SVM believes the appropriate time frame for investing in the new fund is at least three years.
Since launch in 2002 SVM Saltire has delivered an annualised return of 12.7 per cent. The fund has captured approximately 80 per cent of upside in rising markets and also generated positive performance in falling markets.
‘In 2008 just 31 of the stocks in the FTSE All Share ended the year higher, and 580 were down. It is therefore not surprising that few long only managers were able to profit,’ McLean says. ‘Without question this year will be challenging for the economy. However, at a company level there will be winners and losers and fundamental stock picking skills will be required to identify them. The SVM Absolute Return fund will have the flexibility to benefit from both rising and falling share prices, which could be the key to success in 2009.’