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• Gartmore Japan Absolute Return

Gartmore Japan Absolute Return

Looking for an absolute return?

28 January 2010

Gartmore continues with its push into the absolute return market with the launch of the Gartmore Japan Absolute Return Fund. This fund opens up a long/short strategy with exposure to Japan for retail investors.

This type of fund may be attractive to those investors that want exposure to Japan over the long term to provide overall portfolio diversification but have reservation over the region prospect for sustainable long-term growth. 

John Stewart, the manager of the fund, uses a stock picking process which incorporates the use of index futures, cash and forward foreign exchange contracts, and equity swaps for hedging purposes.

It is expected that the fund will hold typically between 80 to 110 stocks with a maximum of 20% exposure to one company for long positions and 10% for short positions.

Capital Growth

The fund attempts to generate capital growth in any market condition by taking both long and short investment positions. The methodology of this fund is therefore very different from that of traditional long-only funds that attempt to outperform relative to stock markets or their peer groups.

A traditional fund may compare well, relative to its benchmark and peers, but still produce a capital loss. The fund uses direct equity investment as well as derivatives and other investment tools to maintain both long and short positions in order to produce returns that are exposed to less volatility than those of a traditional fund.

Profit from rising and falling markets

'Going short' is jargon for the fund manager agreeing to take an option to sell an equity they don’t own, forecasting that the market is likely to fall and buy the equity back at a lower price. Of course these strategies can go wrong and the market, and hence the equity, could rise. This may sound a complex investment strategy but, in essence, it allows the manager to profit from rising markets as well as falling markets.

Stewart expects to use primarily equity swaps and futures when taking short positions. Running this type of alternative strategy is not a new direction for Gartmore, which has been managing these types of portfolios for over 10 years as Hedge funds and is now in the fortunate position to bring them to the retail market.

Stewart has managed a similar strategy in the hedge fund universe for Gartmore since 2000 though performance comparisons are difficult to make between the two as they are exposed to different regulation.

Our view

This type of investment is not for everyone and we highly recommend that anyone considering a position in this fund should read all the literature contained in the links below, to ensure they fully appreciate the risks involved.

The fund it is not currently in our Platinum 120 as we would first like to assess how its strategy operates in practice before considering it for inclusion.

Summary

• A Japanese equity long/short strategy aiming to generate returns
• Focus on larger capitalisation companies (typically > ¥100bn market cap)
• Well diversified at both sector and stock level
• Typically around 100 names in the portfolio
• Largest position size typically <5%
• Net sector exposures typically below +/-10%

 

Sheridan Admans, Investment Adviser and Fund Manager, The Share Centre.
Data correct as of 28 January 2010.

Further information

• Simplified prospectus and key features document

Risk warning

Investments, their value and income they provide can go down as well as up and you might not get back what you originally invested. Also remember that past performance is not a reliable indicator to future performance. Please read our investment research policy to understand how the Advice team arrive at our view and our risk.

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