The fund manger will be Ben Wallace who also manages the Gartmore UK Equity High Alpha fund, which has struggled to deliver over the last year.
According to figures from Financial Express Analytics the fund has underperformed the sector over the last 12 months with returns of -38.78 per cent, compared to a sector return of -28.75 per cent.
Wallace has also been overseeing the more successful AlphaGen Octanis Fund, with £107m assets under management at February 28, which is an offshore Cayman Islands-domiciled hedge fund investing in UK equities.
Launched in March 2005, the fund has managed to sustain performance impressively over the last 12 months.
According to figures from Financial Express Analytics, the AlphaGen Octanis Fund has significantly outperformed the sector over the last year generating returns of 34.92 per cent, compared to a sector return of -8.94 per cent.
The Gartmore UK Absolute Return Fund will follow a similar investment strategy to the AlphaGen Octanis Fund.
Regulatory differences mean the underlying investments will differ between the funds. A key difference between the absolute return fund and the AlphaGen Octanis fund will be that investment in short positions can only be via synthetic instruments, because it is operating under the UCITS umbrella.
The vehicle will also be subject to stricter diversification rules which limit how much can be invested in any particular stock or with any particular issuer. The fund can only borrow temporarily and has daily, rather than monthly dealing, which affects cash flows. All or a substantial proportion of the physical assets of the fund may at any time be made up of cash, near cash, deposits and/or money market instruments.
The fund can invest in companies of any market capitalisation. Long positions may be held through a combination of direct investment and/or derivative instruments. Short positions will be held through derivative positions, primarily equity swaps and futures. The use of derivatives forms an important part of the investment strategy.
The fund may also invest at the manager's discretion in other transferable securities, derivative instruments and collective investment schemes. Gross exposure is a maximum 300 per cent but will typically be 50 per cent to 200 per cent with a net exposure typically -30 per cent to +75 per cent. The fund will take long and short positions on 60 to 100 stocks, depending on market conditions.
Wallace said: "We're seeing a great deal of volatility and we expect this to provide us with attractive entry points to build longer term strategic positions and good tactical opportunities.
"It's important to have an adaptable strategy, particularly in these markets. On the long side, I'm looking at large companies that have the robust business models and necessary capital to see them through the recession. At the same time, I will be looking to take short positions where we see strong scope for earnings disappointment as economic conditions weaken."
Gartmore already runs two absolute return funds – Gartmore MultiManager Absolute Return and Gartmore European Absolute Return.
Since launch date 30 January the funds have returned -0.47 per cent and 1.96 per cent respectively, compared to the IMA sector return of 0.56 per cent.
The move by Gartmore illustrates the continued ability of the sector to attract new entrants. It follows the recent news from Marlborough’s Giles Hargreave – one of the manager identified by the Trustnet Alpha Manager ratings, that he plans to launch an absolute return product. Hargreaves also identified market volatility as key to the product launch.
The trend for new absolute return products continues then despite the fact that according to data available on Trustnet, the last six months have continued to challenge the sector, with a number of funds recording negative returns.
Only ten recorded positive returns, although there is still a wide differential between the best and worst performers, for example, the Octopus Absolute Return fund returned 23.7 per cent while Way's EFA fund returned -7.5 per cent.
Returns – 6mth