Ben Yearsley: Lanning leads the way at absolute return fund

The Analyst

Absolute return funds have had a mixed press. In many cases rightly so, as some have failed to deliver the return the fund's name suggests! One doing what it should is Gartmore Multi-Manager Absolute Return, managed by Tony Lanning. Henderson took over Gartmore in April but the fund has yet to be rebranded under the Henderson name, although this will take place on 11 July.

When fund management companies merge there is often fallout, but perhaps because Lanning was the only member of his team to come across, the integration looks to be progressing smoothly. Tony Lanning and Bill McQuaker (manager of Henderson's multi-manager range) have forged a good working relationship, both bringing different skills and attributes to the table. Lanning remains the lead manager of this fund with Paul Craig as his co-manager.

The first thing to make clear about this fund is that it is not a fund of absolute return funds. It is a multi-manager fund seeking to deliver an absolute return. This is a minor, but important, distinction as Lanning does not have to invest only in absolute return funds.

He invests in funds and other investments he believes can deliver an absolute return. This makes it more of a multi-asset portfolio as he holds absolute return funds, bond funds, hedge funds, and gold, as well as pure equity funds.

Essentially, he looks for investments which behave differently, trying to avoid any one holding dominating performance. Indeed, the biggest contributor to performance has only added 2.4 per cent and the biggest detractor has only taken 0.25 per cent. In other words, Lanning pays a great deal of attention to diversification and risk.

Currently, the fund has almost 25 per cent in absolute return funds with 40 per cent in fixed income, including some absolute return fixed-income funds. There is also just under 10 per cent in pure equity funds, almost 3 per cent in physical gold (via an ETC); and 15 per cent in pure hedge funds. The balance is in cash.

Some of the funds are those you'd expect to see, such as the Blackrock UK Absolute Alpha and Melchior European Absolute Return funds. But others are slightly more unusual, such as the Thames River Water and Agricultural fund and JPM Special Opportunities fund.

Essentially, the core of the portfolio has not changed. Lanning has a team of managers he trusts who have generally performed well. There are funds that have not done so well but he is happy to keep them in the portfolio as long as he understands why they have not performed. For now, Lanning believes funds in the pure absolute return space are interesting. He believes we are moving into a stock picker's market where funds such as these can outperform. Pure equity will never be more than 10 per cent of the portfolio, but within that are some interesting holdings. The JPM fund is included, as well as the Macquarie Infrastructure fund, M&G Global Dividend fund and the Hiscox Insurance fund.

At a time when some absolute return funds have been disappointing, I like Lanning's approach. Henderson was keen to retain his services partly for this fund even though it is only about £100m, but also for his all-round expertise. He appears to have slotted well into the Henderson team.

I have always believed one should never have only one absolute return fund as they do different things and performance can come in spurts. For investors who would rather leave fund selection to a professional, the soon-to-be Henderson Multi-Manager Absolute Return Fund could be an ideal solution.

Ben Yearsley is investment manager at Hargreaves Lansdown. For more details about the funds included in this column, visit www.h-l.co.uk/independent