Reza Vishkai’s Absolute Insight range of Ucits III strategies has made positive returns against cash over the three years since inception
Absolute Insight made its retail debut in February 2007 as a range of Ucits III absolute return strategies, each with the common aim of delivering positive returns in all market conditions.
Three years on, founding strategies Absolute Insight UK Equity Market Neutral, Emerging Market Debt and Currency – which Insight markets individually, or under one umbrella fund known simply as Absolute Insight – have fared well in the face of some of the fiercest headwinds markets have seen.
Since inception, all the strategies have made positive returns against cash, with the UK, Emerging Market Debt and Currency strategies climbing in excess of 19% over the three years on a cumulative basis, according to Trustnet. Now with the recent addition of an unconstrained credit strategy in the shape of Absolute Insight Credit, it seems the range is set to gain further momentum in the retail market.
Reza Vishkai, head of specialist investments at Insight, oversees the Absolute Insight range which he says was designed to invest in areas where the asset manager had proprietary expertise and very competitive investment and research capabilities that could be utilised to generate absolute returns.
Explaining why Insight chose to enter the retail absolute return market, Vishkai says the firm was keen to exploit the strong skill set readily available within Insight.
“Absolute return was not a new concept for us. We had been using such strategies with our institutional clients for a long time before the term really came into popular parlance.”
The arrival of Ucits III, he explains, made it possible to bring such strategies that had previously been the preserve of institutional investors or in unregulated structures to the intermediary market.
“In comparison with traditional fund management where, by some estimates, over 90% of the performance is typically explained by the direction of the market, we realised this was a better way to invest and wanted to bring the benefits of properly managed absolute return strategies to the wholesale market so that intermediaries and their clients could access them too.”
Taking the strategies in turn, Dale Thomas and Max Wahl’s £233m Absolute Insight Currency fund leads the way in terms of cumulative performance, up 27.7% since launch to 15 March, according to Trustnet.
Vishkai says the fund has benefited by the managers’ ability to successfully identify the key cyclical trends which have driven both currency and equity markets over the last few years.
Colm McDonagh’s £155m Absolute Insight Emerging Market Debt fund has returned 20.4% over the period – while Andrew Cawker, Richard Howarth and Iain Brown’s £452m Absolute Insight UK Equity Market Neutral is up 19%.
According to Vishkai, the performance of the UK Equity Market Neutral fund has been generated by the managers ability to select successful ‘pairs’ of long and short positions on a consistent basis.
“This is indicative of the quality of the fund managers in terms of eking out performance from taking matched long/short positions in underlying securities.
“They will typically have a lead position which is either long or short, and then they look to hedge this position with either another stock or a basket of stocks, a sector swap or against the market.” he explains.
Meanwhile, the Absolute Insight Emerging Market Debt fund managed to preserve capital when markets declined in 2008, capturing the upside when the markets turned in 2009.
Vishkai says: “We did this through a combination of having positive net exposure to the market, being selective on countries we were investing in, and using a range of hedging instruments to remove some risk when there was choppiness in the market.
“All of these strategies are doing different things, but share common objectives” explains Vishkai, who puts a great emphasis on the separation of alpha and beta in the successful management of these strategies.
“Ultimately, they are all hedged strategies that aim to capitalise on fund manager skill in specific asset classes to capture alpha and in some instances participate in directional moves to generate returns on a consistent basis,” says Vishkai.
“The fund managers know what they’re doing and have the flexibility to profit even when their markets are going down. They do this by, for example, having short positions and investing in derivatives that rise in value when markets decline.”
“Some strategies will of course work better in certain environments and in an overall fund context they can be strong diversifiers relative to each other.”
The £280m Absolute Insight Fund invests in all the Absolute Insight strategies, giving investors access to the full range of strategies at the same time, but does not, explains Vishkai, put the strategies head to head to outperform each other.
“We do not take a view on Emerging Market Debt doing better than Currency over the next three months,” he says. “Instead we are trying to spread our risk evenly across the strategies.”
UK Equity Market Neutral accounts for 32.5% of asset allocation at 31st January, followed by Currency 24.1%, Credit 22.4% and Emerging Market Debt 21.1%.
As chair of Insight’s Absolute Return Investment Committee, Vishkai understands the need to keep on developing the proposition in line with market demand and opportunities.
In June 2009, Insight launched added Absolute Insight Credit – an unconstrained, ‘best ideas’ strategy which to date has delivered an impressive return of 34% since inception, net of fees, according to Vishkai.
“The addition of a credit strategy was a natural choice for us. Insight has strong capability in the area and an unconstrained, absolute return approach suits our credit team’s investment style exceptionally well – allowing them to target the most attractive opportunities at the best times with no benchmark constraints.”
He believes the timing of the Absolute Insight Credit launch was also beneficial. He points out there was massive dislocation in the market for most of 2008 and early 2009.
“A lot of securities were being sold almost indiscriminately because some institutions were forced sellers. But if you were healthy as a company – and we were – and did not get caught up in any of the dramas of the credit market you could take advantage,” Vishkai says.
“When we launched the fund it provided us with a good buying opportunity with some of these securities, and because of our size and our clout in the market we were being shown a lot of deals.”
While the fund has benefited from the market dislocation, the portfolio has been positioned to do well even during periods when overall credit markets soften.
“The fund manager also employs a range of hedging positions in the portfolio. When there have been periods of correction en route to a major rally we have managed to protect capital or make money.”
He concludes: “We now have five strategies, including the Absolute Insight Fund, which all have very good track records.”
