Fund Awards 2013: Absolute Return

Best larger fund: CF Odey UK Absolute Return

Absolute return funds aim to deliver positive returns every year rather than trying to outperform a stockmarket index. But this outcome is easier said than done and most funds have failed to live up to expectations. Our prize winner in this category, the £500 million CF Odey UK Absolute Return fund, has an almost faultless record over the past three years.

Based on figures analysing returns over every 12-month period within the past three years produced by Lipper, Odey UK Absolute Return has produced positive returns on all but one occasion.

Yet manager James Hanbury concedes: "Although our general style is to try and deliver rolling 12-month absolute returns we do say to our clients that we will probably be one of the most volatile funds in the sector. We say this as we are prepared to take on market risk, we back our top ideas with large weightings and we like unloved stocks that tend to be more volatile."

Hanbury says the fund's success has been down to the choice of stocks, in which he is helped by the group's in-house analysts. He can hold shares conventionally if he thinks prices are rising or "short" them if he thinks their price is going down. He only puts shares in the portfolio that show considerable upside, or downside for shorts, "at least 50% up or downside generally". Combining stocks with these return profiles has delivered a good risk-adjusted return.

On top of that Hanbury is very proactive in adjusting the weightings in each stock to reflect his conviction levels at particular share prices. He says: "We have had a net long bias of about 50% in the past few years, which has been the right call and has clearly helped our returns. We do not always have to be net long though."

Risk is controlled by Hanbury and his team taking a view on general macroeconomic trends. He says: "We benefit from the macro being taken very seriously here at Odey and the firm having a good track record of seeing systemic and economic risks."

Best smaller fund: Marlborough Defensive

This is the second award this year for the group that runs the £43 million Marlborough Defensive fund. It has managed to achieve a positive return in each and every 12-month period over the past three years according to Lipper, as well as fulfilling our other criteria.

It is run by the Marlborough fund of funds team, led by Nicholas Cooling. Each member of the team contributes ideas and performs technical and quantitative analysis and modelling in relation to potential holdings. The objective is to construct a low-volatility, diverse, defensive portfolio of predominantly UK assets that is uncorrelated with the stockmarket and designed to achieve the maximum possible returns in excess of a cash account, but with the minimum risk of a capital loss.

This fund is one of only a small number of our prize-winners this year that achieves its goals through investing in other funds. Funds in the portfolio include other Marlborough funds but it predominantly consists of external funds, including exchange traded funds.

Cooling explains: "Our investment process is dynamic with funds under constant scrutiny and existing holdings continually reassessed. We have had little or no equity exposure since launch in 2009 and the fund has been allocated to a range of UK and international index-linked securities, both national and corporate, and UK and international fixed-interest corporate bonds across the broad credit spectrum".

The fund has also backed a number of strategic bond funds "which have themselves managed the credit and interest environment to maximum advantage", says Cooling.

In addition, the fund has had an exposure to gold, which added significantly to its performance and was successfully sold before the April price falls. At the margin Cooling says its exposure to selected absolute return funds, the life settlements market and to a lesser extent property has also added value. For the time being Cooling says the team is focusing on the fund's present range of assets as they feel they have created an "all weather" portfolio.

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Fund Data
Name1 Year (%)3 Years (%)5 Years (%)Rating
CF Odey Absol Ret11.2768.65157.884 star(s)
Marlborough Defensive0.146.3226.551 star(s)

The annual Money Observer Fund Awards recognise the actively managed funds that have delivered consistently good, low-volatility returns for investors. Who were the 2013 winners, and can they continue to prosper?