Andy Parsons, head of investment research at The Share Centre, explains the part the SWIP UK Flexible Strategy fund has in a diversified portfolio.
Many funds that aim to generate returns in all forms of market conditions have failed to deliver on these statements. Generally these funds underperform in a rapidly rising market and far too many have also failed to protect on the downside, suffering significant declines. However, the SWIP UK Flexible Strategy fund has consistently performed over the past three years and could serve a purpose in a well-diversified portfolio where an investor is looking to help limit potential downside risk.
The fund is managed by the highly talented James Clunie and aims to generate long term returns through a combination of both long and short positions in UK equities.
This fund’s identification of potential short positions is driven initially by SWIP’s fundamental research process, which estimates a fair value for a stock. From this position, SWIP’s stock lending data screens identify the risks and catalysts. James will then look to short the stocks he believes are overpriced and where there is a catalyst and where there is limited short selling.
It is best to assess the fund performance since James took over in August 2009. On a current three year cumulative position, the fund has returned 31.06% compared to its sector average (specialist) of 17.86%, ranking it first quartile.
In 2011, the fund and investment approach truly came to the fore, demonstrating the ability to deliver a positive return against tough economic and market conditions. The fund delivered a positive return of 3.4% compared to its sector, which had a negative return of -15.75%.
For those investors seeking a fund that has the potential to provide a positive capital return regardless of market conditions, and with the ability to short a company where concerns arise over valuations and business risks, this fund may well be suitable.