In my first Save & Spend column I wrote about the Skandia Global Best Ideas Fund. I said at the time that I wanted to help you choose the best fund managers to guide you through the bad times as well as the good. That is even more important today than it was then; given the current market gyrations, cool heads and experienced managers are just what you need.
The Skandia Global Best Ideas Fund launched just over a year ago and it has performed extremely well, although it is very early – and, for course, it's important to remember that past performance is not necessarily a guide to the future.
Its sister fund, UK Best Ideas, has also been a success in the early stages. They were the most innovate and exciting fund launches of last year, but what else have Skandia got up their sleeve? The launch this week of their new UK Strategic Best Ideas Fund really caught my eye.
Skandia have once again selected an all-star line-up of 10 fund managers, and tasked them with choosing their 10 best ideas. The key difference lies in the flexibility given to this team.
In addition to choosing shares that they believe will go up in value (known as "long" investments), the managers are also able to profit from shares they think will fall: this is known as "shorting".
Shorting works by the fund manager selling shares they do not 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. If a manager is shorting a share then a fall in its price will make money, but a rise will lose money.
Each of the 10 managers in Skandia's UK Strategic Best Ideas has the freedom to short stocks depending on where they see the greatest potential for returns. All 10 of their stock ideas can be long, but they can replace up to five of those with shorts. This provides the fund with the potential to protect some of its value when markets are falling. Nothing is guaranteed, though, and as ever the key lies in the ability of the fund managers to make the right decisions.
It is important to note that Skandia have not simply copied the managers selected for one of the previous funds. They have actively sought out fund managers with a talent for shorting; it is a specialised skill that requires experience. Some of the managers may therefore be unfamiliar to many investors because they run institutional funds that aren't available to the public.
The line-up includes John Wood at Artemis and Charles Tritton, who is responsible for New Star's alternative investment business and risk management. Another of the fund's luminaries is Colin McLean, founder and chief executive of SVM – a manager who is often unfairly overlooked. The impressive list of managers includes some of the best in the industry.
I realise that many private investors may have read scaremongering articles about hedge funds, and could therefore be wary of this fund. Yes it can go down in value as well as up, but I will stress that, although shorting is a technique commonly used by hedge funds, Skandia UK Strategic Best Ideas is not a hedge fund. Investors should remember that many of the high-profile problems with hedge funds have come as a result of what I believe is reckless borrowing and strategies that are, on occasions, no better than gambling. I think that Skandia are adopting a far more sensible approach and the fund has no debts; this is an intelligent use of shorting.
Markets are uncertain and volatile at the moment. In this climate the marriage of a quality group of fund managers with a strategy that gives them some ability to protect returns during falling markets makes a compelling choice.
However, this is not just a fund for the near term and its returns could be significantly different from the index. In my opinion this fund has the potential to be a superb long-term performer and I believe it would make an excellent complement to a UK equity portfolio.
The writer is the head of research at Hargreaves Lansdown, the asset manager, financial adviser and stockbroker. For more information about the funds included in this column, visit www.h-l.co.uk/independentReuse content