Objective and investment policy
The fund aims to deliver combined income and capital growth of at least the cash rate plus 4% a year over any three-year period. That is before any charges are taken and in any market conditions. The cash rate is based on the three-month EURIBOR rate at which banks borrow money from each other. The fund aims to achieve this while seeking to minimise the degree to which the value of the fund fluctuates over time, and also seeking to limit monthly losses. Managing the fund in this way reduces its ability to achieve returns significantly above three-month EURIBOR plus 4%. There is no guarantee that the fund will achieve a positive return over any period. Investors may not get back the original amount they invested.
The fund has a highly flexible investment approach with the freedom to hold different types of assets issued anywhere in the world. The manager can allocate capital between asset classes in response to changing economic conditions and asset prices moving below their ‘fair’ value where investors react emotionally to events. The blend of assets held in the fund is regularly adjusted depending on where the manager sees the most value, and to manage risks in order to limit losses. The manager looks to manage risk by combining diversified and relatively uncorrelated assets (which are affected by market conditions in different ways) and by employing derivatives strategies to help protect or profit from falling markets. Where the fund manager believes it appropriate, the fund may hold a high level of cash. The fund will primarily invest in bonds (loans to governments or companies paying a rate of interest), company shares, currencies, cash and near cash (short-term and easily tradeable bonds). The fund will mostly gain exposure to these assets by investing through derivatives, and by investing directly. It may also invest through other funds. The fund will typically take positions at index, sector or thematic level but it may also take positions in individual shares or bonds. Derivatives are financial contracts with a value derived from one or more underlying assets. The fund may also use derivatives to reduce risk, to benefit from the fall in price of specific assets, and to gain exposure to investments exceeding the value of the fund in order to increase potential returns. The fund may also invest in deposits and warrants (allowing the fund manager to buy stocks for a fixed price until a certain date) which may be from anywhere in the world and denominated in any currency. Derivatives the fund may invest in include: • Spot and forward contracts (bespoke agreements to buy or sell assets at a specified price at a future date) • Exchange-traded futures (standard agreements to buy or sell currencies, shares, bonds or interest rates at a future date at a predetermined price) • Swaps (agreements which involve exchanging cashflows with another party), including fixed or index-linked interest rate swaps, inflation-linked interest rate swaps, shares, bonds, currency, or other asset swaps • Single company and index credit default swaps. These contracts are meant to exchange the credit risk between parties. For example, they can be used to protect the fund against potential defaults of companies, group of companies or governments • Options on shares, bonds, currencies or indexes (options offer the right or the obligation to buy or sell an asset at an agreed price and time). Bonds the fund may invest in include: • Bonds classified as ‘investment grade’ by one of the recognised ratings agencies (that is, rated ‘BBB-’or above by Fitch or Standard & Poor’s, or ‘Baa3’ or above by Moody’s) • Bonds issued or guaranteed by companies, governments, local authorities, government agencies or certain public international bodies • Convertible bonds (bonds issued by companies that give the bondholder the option to trade in the bond for shares in the company) • Up to 60% in ‘sub-investment grade’ bonds (that is, rated lower than ‘BBB-‘ by Fitch or Standard & Poor’s, or lower than ‘Baa3’ by Moody’s) which will not be rated below ‘CCC’ • Bonds from issuers located in emerging markets • Up to 20% in contingent convertible bonds (bonds issued by companies which convert into shares in the company when certain conditions are met) • Up to 10% in asset-backed securities (tradeable market instruments whose income and therefore value derives from a specified group of underlying assets).
The fund may also enter into total return swaps (agreements which involve exchanging flows of income and capital gains from an underlying asset with another party). The fund’s exposure through total return swaps will generally not exceed 25% of the fund’s value. The maximum which can be subject to total return swaps is 50% of the fund’s value.
Investment policy and strategy
The investment manager has a very flexible top-down approach to the allocation of capital between different types of assets in response to changes in economic conditions and asset values. This approach combines in-depth research to work out the value of assets over the medium to long term, with analysis of market reactions to events to identify investment opportunities. In particular, the investment manager seeks to respond when asset prices move away from a reasonable sense of 'fair' long-term value due to market reactions to events.
The blend of assets held in the fund is regularly adjusted depending on where the investment manager sees the most value and to manage risks in order to limit losses. The investment manager will seek to manage risk by investing globally across multiple asset classes, sectors, currencies and countries and by combining diversified and relatively uncorrelated assets (which are assets affected by market conditions in different ways). The investment manager will also employ derivatives strategies to help protect or profit from falling markets.
The fund will typically take investment positions at index, or sector level, or invest in a basket of assets to exploit certain investment themes (for example, shares in companies with exposure to a certain country or region) but it may also take positions in individual shares or bonds.
Risks associated with the fund
The value and income from the fund's assets will go down as well as up. This will cause the value of your investment to fall as well as rise. There is no guarantee that the fund will achieve its objective and you may get back less than you originally invested.
An ‘absolute return’ fund may not move in line with market trends or fully benefit from a positive market environment.
The fund may use derivatives to profit from an expected rise or fall in the value of an asset. Should the asset’s value vary in an unexpected way, the fund will incur a loss. The fund’s use of derivatives may be extensive and exceed the value of its assets (leverage). This has the effect of magnifying the size of losses and gains, resulting in greater fluctuations in the value of the fund.
The fund can be exposed to different currencies. Movements in currency exchange rates may adversely affect the value of your investment.
The hedging process seeks to minimise, but cannot eliminate, the effect of movements in exchange rates on the performance of the hedged share class. Hedging also limits the ability to gain from favourable movements in exchange rates.
In exceptional circumstances where assets cannot be fairly valued, or have to be sold at a large discount to raise cash, we may temporarily suspend the fund in the best interest of all investors.
The fund could lose money if a counterparty with which it does business becomes unwilling or unable to repay money owed to the fund.
Further details of the risks that apply to the fund can be found in the fund's Prospectus.
The Fund allows for the extensive use of derivatives.