Investors need to thoroughly research the growing range of 130/30 funds, Old Mutual chief investor o...
Investors need to thoroughly research the growing range of 130/30 funds, Old Mutual chief investor office Eoin Murray has urged.
Murray said specialist skills are required to manage the long/short funds and warned clients to be wary of choosing managers who are used to running long-only portfolios. “Investors need to ensure the manager has true alpha identification skills and can deal with the risk framework and the prime brokerage aspects,” he said.
“We would not encourage investors to be a guinea pig for a manager who is experiencing shorting for the first time.”
Murray delivered his warning following the launch of several 130/30 fund launches in recent months from groups such as UBS, JPMorgan, Resolution, F&C and Threadneedle.
He said demand has largely come from pension funds in the States where as much as $50bn has been invested in 130/30s and he feels certain the UK retail industry will be quick to adopt the strategies.
Murray said: “130/30s allow managers to capture both sides of the market. Most have positive and negative views on stocks but long-only skills prevent them from doing anything with the companies that they do not like.
“A 130/30 fund gives the opportunity to increase potential for outperformance and more opportunities for risk reduction. These two factors together can be very powerful.”
However, he added that mediocre performance could get punished not just once but twice.
“The risk in these mandates is a much more dangerous beast,” he added.
