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Three off-the-radar investments by Premier’s table-topping multi-asset team

25 August 2016

Premier’s Simon Evan-Cook highlights three niche funds that offer attractive opportunities in the current market.

By Gary Jackson,

Editor, FE Trustnet

A market-neutral long-short fund, a trust specialising in UK commercial loans and zero dividend preference shares from a value-orientated portfolio are some of the investment opportunities that the Premier multi-asset team have added to portfolios in recent months.

Our recent study on the balanced funds that are consistently in the first decile for a range of metrics highlighted two of the team’s funds when they captured the top two spots after their strong performance and healthy risk-adjusted returns over recent years.

As the graph below shows, the Premier Multi-Asset Distribution and Premier Multi-Asset Monthly Income funds have outperformed their average peer by a wide margin over recent years, as well as being two of the best performers when it comes to metrics such as Sharpe ratio, maximum gain and alpha generation.

Performance of funds vs sector over five years

 

Source: FE Analytics

The managers are not afraid to head into non-traditional areas of the market if they cannot find compelling value opportunities in more mainstream areas so in this article senior investment manager Simon Evan-Cook talks us through three recent purchases for some of the funds.

 

 

KLS ZEBRA Global Equity Beta Neutral

This Dublin-domiciled fund, which is a Ucits mirror of an existing offshore hedge fund, was added the Premier Multi-Asset Conservative Growth and Multi-Asset Absolute Return funds in June, shortly after its launch. Like all the investments in this article, it’s a “modest” position and accounts for less than 2 per cent of the portfolio.

Evan-Cook said: “KLS ZEBRA Global Equity Beta Neutral, as the name suggests, is a market-neutral long-short fund that gives us access to the managers’ alpha but without the beta.”

“Given the conservative nature of the funds we’re putting this in, and the less attractive valuations some long-only equity markets currently offer, we see this as a potentially useful source of return.”

Manager Roger Ibbotson, chairman and chief investment officer of Zebra Capital Management, is emeritus professor of the practice of finance at Yale School of Management. He is known for his research on a wide range of financial topics, including popularity, liquidity, investment returns, mutual funds, international markets, portfolio management and valuation.

KLS ZEBRA Global Equity Beta Neutral has an absolute return approach to investing and aims for a low correlation to global equity markets. It seeks an annual return of 7-8 per cent with volatility of between 5 and 6 per cent over the market cycle.


Essentially, it uses valuation as its guiding principle. Ibbotson makes use of a proprietary ‘popularity’ factor, which identifies fundamentally strong but less popular stocks that are overlooked, less demanded and undervalued, and avoids those that are fundamentally weak but over-traded.

The portfolio is highly diversified with around 1,000 positions and targets beta neutrality for individual US and Japanese sectors and for individual countries in Europe.

 

Hadrian’s Wall Secured Investments

This is another new launch that the Premier multi-asset team has bought for its Multi-Asset Conservative Growth and Multi-Asset Monthly Income funds. The investment trust floated in June this year, so only has a very short track record at the moment.

Performance of trust vs sector since launch

 

Source: FE Analytics

It primarily invests in UK commercial loans secured by assets such as equipment, plant and machinery, real estate and trade receivables. It plans to fill a gap created by the global financial crisis by lending to UK smaller companies that have been left under-served by the mainstream banking sector.

“We have a reasonable exposure to alternative lending across most of our funds, driven by the fact that banks are being pushed away from many areas where they previously dominated the issue of loans, allowing other operators to come in and lend at attractive rates,” Evan-Cook said.

“Hadrian’s Wall Secured Assets is another example of that theme. They lend to SMEs, with their loans secured against property, equipment and financial assets. It’s targeting a yield of around 6 per cent.”

 

UIL 2022 ZDP

These zero dividend preference shares (ZDP) in the Bermuda-incorporated investment company UIL Limited ((formerly Utilico Investments Limited and Utilico Limited) have been added to the Premier Multi-Asset Conservative Growth fund. These shares were issued by the trust and bought by Premier’s fund in June.


Evan-Cook said: “We like zero dividend preference shares as a stable source of returns for our more conservative investors.”

Performance of trust vs sector over 5yrs

 

Source: FE Analytics

“Supply of these shares has been dwindling of late, but the Utilico 2022 looks like an attractive issue, which offers a gross redemption yield of 6.25 per cent with decent asset cover. The manager invests in a broad range of undervalued assets, such as infrastructure, renewable energy and oil & gas assets.”

UIL focuses on investments where the underlying value is not reflected in the market share price. Its top 10 holdings currently include the likes of gold miner Resolute Mining, the Utilico Emerging Markets investment trust, financial services firm Somers, resources investors Zeta Resources and electronic payment services provider Touchcorp.

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Data provided by FE fundinfo. Care has been taken to ensure that the information is correct, but FE fundinfo neither warrants, represents nor guarantees the contents of information, nor does it accept any responsibility for errors, inaccuracies, omissions or any inconsistencies herein. Past performance does not predict future performance, it should not be the main or sole reason for making an investment decision. The value of investments and any income from them can fall as well as rise.