Ask The Experts: How This Alternative Strategy Delivers Greater Returns
Caroline Maurer, co-fund manager of the Henderson Horizon China Fund, speaks to Fundsupermart about the long-short strategy utilised by the Henderson Horizon China Fund and how it may be used to deliver greater returns for investors.
What are the performance drivers that contributed to the fund's strong outperformance against the benchmark and peers in early 2012?
- As of 12 March 2012, the fund is up approximately 23% year-to-date, outperforming the index by 8 percentage points
- Broad based rally which helped fund's performance
- Contributors to outperformance have come from both long and short positions
- Fund is 150% long and 50% short
- Long positions in the financials sector, including banks, property and insurance companies, have done very well
- Selected stocks in the consumer discretionary space have also performed well
- Short positions in the utilities, telecommunications, and industrial sectors also contributed to performance
China was one of the worst performing markets over the past two years, how did the fund navigate through these tough times?
- Fund's 150/50 structure allows it to take advantage of weakness to a certain extent
- Fund also has the flexibility to use options to protect its downside
- For example, the fund had put options in place during July and August of 2011 to protect from the large sell off in the market
The Fund is classified as an alternative investment on the Fundsupermart platform because unlike traditional China funds, the Fund can short stocks. What are the advantages of doing so?
- Fund's categorisation is open to debate as the fund always has a net exposure of only 100%
- Not a hedge fund with 0% net exposure
- Flexibility of taking short positions gives fund additional alpha
How do you select your short positions?
- Methodology used to select short positions is the same as the methodology used for long positions
- Valuations of stock will determine if the company is fundamentally overvalued
- Relative value analysis to identify pair trades will also contribute to the fund's short positions
The fund has been underweight the Taiwan market, in fact taking a short position in it for some time now. However, the Taiwan market has done pretty well since the start of the year. Have your views on Taiwan changed since?
- View on Taiwan has not changed
- Fund also has long positions in Taiwan, but is short Taiwan on a net basis
- Fund sees more opportunities for long positions in Hong Kong
- Does not mean the fund thinks there is little upside potential in Taiwan
||30 April 2012
||Ask The Experts: How This Alternative Strategy Delivers Greater Returns