Funds Centre

Odey UK Absolute Return - new fund launch

Odey is not new to investing but this is their first offering investing predominantly in the UK. The fund will be managed by James Hanbury and he will be assisted by Crispin Odey, founder of Odey Asset Management.This will be a best ideas fund

with a concentrated portfolio of 40 to 50 holdings and so will carry greater risk. Being an ‘absolute return’ fund it will aim to deliver positive returns each year and will also look to outperform the FTSE All Share Index over an economic cycle, although it could under perform in a rapidly rising market. Like all equity based funds you could get back less than you invested.The investment strategy involves identifying major trends in the market followed by careful stock selection. The fund essentially looks to profit from shares that rise in value as well as those that fall in value and this requires a particular skill. You are dependent on the manager making the right calls rather than the market as a whole going up.According to Odey, companies whose share prices may rise in value are likely to be market leaders in their field with solid brand strength, earnings visibility and strong balance sheets with prudent accounting. They will also look to benefit from companies whose prospects they believe are poor and likely to worsen using an investment technique called shorting (explained below).Crispin Odey and his team have built a good reputation for managing money in a variety of areas. This fund is very specialised and could prove successful although we have yet to see how the new manager James Hanbury will get on. For this reason the fund is not on currently the Wealth 150 list of our favourite funds in each sector.Additionally, the fund has an annual management charge of 1.25% plus a 20% performance fee on any positive return (please refer to the key features for more details). On the whole, we do not like performance fees. One of the problems with performance fees is the benchmark used to calculate the fee. We can argue that any active fund manager should be able to deliver positive returns in the longer term so performance fees can make these types of funds expensive.Meera Patel, Senior Analyst> Key Features of the Odey UK Absolute Return FundSHORTING - AN EXPLANATIONTraditionally investors buy assets they believe will rise in value. Shorting is different.The principle is that the fund manager actually sells shares they don’t own. This in effect means he owes the buyer the shares. The buyer agrees they will not take delivery of the shares for, say, six months and the fund manager hopes that by then the share price will have fallen. After six months the fund manager purchases the shares in the market and passes them on to his buyer. The difference between the two prices is the profit or loss. For example.1. Fund manager sells short 10,000 shares at £2 each = £20,0002. Purchase these shares six months later at 80p each = £8,0003. Profit = £12,000In this example had the share price risen by the same amount, it would have cost the manager more to purchase the shares than they made from selling them and they would have made a £12,000 loss. There are many ways of effecting this investment strategy and therefore this is not an exact description of how it happens, and ignores transaction and other costs, but it hopefully explains the principle.