The fund has just achieved a three-year track record, racking up impressive numbers, and the managers attribute most of their gains to their long portfolio.
There are few areas of the market that are shortable, they say, as companies have had to strengthen to survive.
Nevertheless there are three areas in particular they are shorting, the first of which includes those companies most exposed to the UK consumer.
"We have been increasing our short exposure to domestic consumer areas that have had a tremendous run," Westwood said.
"General retailers have been very good but now things are looking stretched given the pressure on the average family’s budget."
"Gas prices are higher, food prices are higher, most people’s non-discretionary expenditure is under pressure. Wage growth remains moderate too."
The FTSE All Share General Retailers Sector has outpaced the broader market by a long way this year, according to data from FE Analytics.
The sector has made 45.19 per cent while the All Share is up 22.37 per cent. Stocks such as Marks & Spencer, Next and Sports Direct feature in the group.
Performance of sectors over 1yr
Source: FE Analytics
One stock the managers have been shorting is Telecity, a data services provider in an industry the managers say is challenged.
"Shares are down 10 per cent this morning because the finance director has unexpectedly departed," they said.
"We have analysed the company for a few years and have had growing concerns about their pricing power."
Westwood explains that there are low barriers to entry in the industry which are being eroded further, with it being fairly simple to buy a parcel of land and park a server on it.
Telecity is down 13.37 per cent over the past 12 months, according to data from FE Analytics.
Performance of stock vs market over 1yr
Source: FE Analytics
Another area the managers have been shorting is the controversial outsourcing sector.
"We have had success shorting companies that are selling services to the Government," Westwood said.
"First, they are not very good at it, and we have had cost overruns and 'questionable practices' at some."
"We have been short several of those companies. We were short the company that lost one of its directors this week."
Serco’s chief executive Christopher Hyman quit last Friday, a day after Richard Morris resigned as UK chief executive of G4S.
Both companies have been involved in scandals over how much they billed the Ministry of Justice for tagging contracts, with allegations surfacing that they overcharged.
Westwood says that irrespective of the results of the investigation into these claims, the future for the industry looks poor.
"Secondly, the amount of money they enjoyed under Gordon Brown is now long gone. The Government will not pay the sort of money these companies have enjoyed."
Both stocks have underperformed the FTSE over the past year, with rival Capita seemingly doing well off their troubles.
Performance of stocks vs index over 1yr
Source: FE Analytics
Westwood also warns against indiscriminate buying of "expensive defensives".
"These are companies that are priced to be very safe but are sometimes not as defensive as you might think," he said.
Westwood won’t name any specific companies in this area, but he refers to a beverage bottler that recently joined the FTSE 100.
"We would question the valuation on that stock," he said.
Coca-Cola Hellenic was elevated to the index in September.
Threadneedle UK Absolute Alpha sits in the IMA Targeted Absolute Return sector. It has made 21.93 per cent since launch, compared with 41.46 per cent from the FTSE All Share.
Performance of fund vs sector and index over 3yrs
Source: FE Analytics
Over that time the fund’s volatility has been just 5.11 per cent, three times less than the 15 per cent of the FTSE.
The fund has been net-long for its entire life, and the managers say that this is likely to be the case for some time to come. They have generated alpha from both longs and shorts overall, they say.
"On balance, the net exposure of the fund throughout its three years has been in the defensive areas of the market," Westwood said. "There’s often a flight to safety to those names when the market falls."
The fund has around 20 to 25 short positions, but in general the managers say they are finding few candidates and have taken out short positions on the FTSE 100 and S&P 500 that bring the total negative exposure up to 16 per cent of the fund.
"It has been a tough environment for finding struggling companies," Westwood said. "We think with the risk of M&A activity it’s a better risk trade-off to use index futures."
The manager points out that the P/E ratio on the UK market is slightly higher than its historic average, but that the Schiller P/E, which looks at longer periods of time, is level with historical norms.
Westwood acknowledges that corporate results have on the whole been disappointing this year, and that 2014 may prove to be tougher. However, he still foresees being net long the market.
The fund has ongoing charges of 1.7 per cent plus a performance fee that added 0.33 per cent to the cost last year.
