Octopus outperforms rest of breed

The CF Octopus Partner Absolute Return fund aims to achieve a positive absolute return for investors through investment in UK equities, independent of stock market price movements and economic conditions.
 
According to Financial Express Analytics, since launch date the fund gained 35.85 per cent, while the absolute return sector is down -2.6 per cent over the same period.

Fund performance - 1yr




According to data available on Trustnet whilst the last six months have continued to challenge the sector, with a number of funds recording negative returns, the Octopus absolute return fund has continued to deliver double-digit returns.
 
Returns – 6mth 

Fund	6mth %
Octopus CF Octopus Partner Absolute Return A Acc	15.0
Threadneedle Absolute Return Bond R Gr	6.8
Newton Absolute Intrepid SIS	5.9
SG Total Return Bond Inst Acc	5.8
Stan Life Inv Global Absolute Return Strategies Ret Acc	1.6
Marlborough ETF Absolute Return B	1.5
Insight Absolute Insight Fp	0.5
BlackRock UK Absolute Alpha Acc	-2.0
CF Absolute Return Cautious Multi Asset A Acc	-2.5
Henderson Credit Alpha I Gr Acc	-2.8
Baring Absolute Return Global Bond A Acc	-3.5
Cazenove UK Absolute Target P1 GBP	-3.9
Henderson Emerging Market Debt Absolute Return Inst	-4.0
Henderson Absolute Return Fixed Income A	-5.1
Skandia IM Alternative Investments GBP	-5.7
SWIP Absolute Return Bond A Acc	-6.3
EFA Absolute Return Portfolio B Acc	-9.3

In order to deliver on its investment objective, David Crawford, manager of the fund, adopts a long/short investment strategy for the fund. He seeks to invest in company shares that, after analysis, are deemed to be mis-priced by the stock market, thereby creating opportunities to buy under priced stocks and sell overpriced stocks.

Explaining the drivers of portfolio performance, Crawford says: "The fund is a long/short UK equity fund which aims to generate a positive performance in all market conditions. The fund can hold long and short positions. The fund has broadly been net short since launch and that has created positive absolute returns."

Crawford does not believe that an annual return of 35 per cent will be sustainable because of the drop in interest rates. The target return for the fund is 15 per cent per annum, and "given lower interest rates the target for this year will be 10-15 per cent," he says.

The fund is positioned to generate a positive return in all market conditions. "The net long position will hopefully generate decent returns and then I always have the option of going to neutral or net short. There should also be alpha generated despite market movements," Crawford adds.

Octopus gets some of its market exposure via derivatives, but Crawford explains that liquidity is not an issue:

"The only derivatives the fund uses are CFD's, index futures and commodity futures. These are all highly liquid, the CFD's have the same liquidity as normal equities and the index and commodity futures are extremely liquid markets," he says. 

The largest holding is cash, which accounts for 52.6 per cent of the portfolio, and is used to fund the CFDs and index futures.

Octopus has also had significant exposure to gold – as high at 7 per cent at the end of January - but this has recently been reduced as gold prices started to fall during March. 
 
 David Crawford

When asked what Octopus has done differently from other absolute return funds, Crawford says: "I only compare myself to other long/short equity absolute return funds. It is hard to say what I have done differently. I have simply gone long of stocks which I believe will rise in value and gone short stocks that I believe will fall in value. This has on the whole worked and generated a good return."

“I would attribute the performance to manager skill,” he adds.

Sector weightings – 30th January 2009 

Money Market	52.6
Others	51.4
Gold	7.4
Life Insurance	7.2
Construction	5.0
Engineering & Machinery	3.2
Other Financial	3.1
Health Care	1.6
Information Technology	1.1
Electronic & Electrical Equipment	0.7
Forest Products	0.5

Source: Trustnet