An Absolute Return fund worth waiting for
Paul Marriage’s offering in the sector is effectively closed to new money but history suggests investors will once again be able to access its above-average performance in the near future.
Cazenove Absolute UK Dynamic is one of the few funds in IMA Absolute Return to meet the objective of the sector and consistently turn a profit every year.
Headed up by FE Alpha Manager Paul Marriage and co-managed by John Warren, the fund passed its third anniversary last September, after returning 5.29, 8.74 and 4.24 per cent in its first three calendar years.
Marriage effectively closed the fund to new money last month to take a "pause for breath", but having taken this step before only to re-open the fund again shortly after, it is still worth keeping an eye on.
Ben Willis, IFA at Whitechurch Securities, said: "We think its managers are capable. It would be on our radar."
After achieving an overall three-year return of 19.57 per cent against 6.03 per cent for the sector, and with Marriage’s strong track record in other funds – he has outperformed his peers in seven out of the last nine years – the fund may appeal to those looking to ride out the rough market.
Performance of fund versus sector since launch
Source: FE Analytics
Marriage also runs the four crown-rated Cazenove UK Smaller Companies fund, which has outperformed its sector over three, five and 10 years despite high market volatility.
He explained his management philosophy to FE Trustnet last month, saying that he would never invest in a company without meeting the management first.
"Finding out what is going on on the ground and then comparing that to what the market is expecting for that company and its profits is the key to our investment process," he commented.
With costs that are below-average for the Absolute Return sector – it has a TER of 1.64 per cent – the fund focuses on mid and small cap stocks, targeting a 10 per cent annualised return over the medium-term.
Cazenove Absolute UK Dynamic has significant holdings in electronics (9 per cent), media (6.8 per cent) and chemicals (6.2 per cent).
Sports media company Perform Group, broadcasting equipment supplier Vitec Group and retailer John Menzies are the three largest holdings, with more than three per cent of the fund invested in each.
Absolute Return funds have received a lot of criticism recently, and the IMA’s review of the sector last year did little to appease this.
Willis says this is because the sector contains funds with very different approaches.
"You have to know what the underlying strategy is and take a long-term view with these funds," he explained.
Speaking at the launch of a new Absolute Return fund this week, Gordon Davidson, joint managing director of unit trust managers at Jupiter Asset Management, said that the sector was still young and changes were to be expected to its classification.
"A logical next step is to create three or four sub-sectors for the overall Absolute Return sector," he commented. "There is the need to consult widely on that."
Willis thinks any division of the sector would leave the problem unsolved as some funds still wouldn’t fit.
"Investors have to get to know the investment strategy of the fund and make their choice on that basis," he added.
He also defended the funds against their critics, finishing by saying: "They held up well when everything else went to hell in a handcart."