FUND LAUNCHES                  A rose by any                  other name...Should alternative Ucits vehicles be described ...
hedge funds, but it could just mean that                                                         value are from Pioneer. T...
FUND LAUNCHES FIVE EXAMPLES OF LONG-SHORT FUNDS Name of fund                            Pioneer Funds –                   ...
* Excludes administration and custodian feeGam Star Diversified                       Parvest Diversified Euro            ...
FUND LAUNCHESstrategies have attracted criticism from some                                   while others say the informat...
SPONSORED PROFILELook to high-yieldfor the long-termInvestors with time to spare could do worse than consider sub investme...
FUND LAUNCHESCatapulting theirway to the topAs assets under management grow in Europe’s investment industry,George Mitton ...
COUNTRY OF DOMICILE                                                                   ACTIVE MANAGEMENT?                  ...
FUND LAUNCHES ‘Some funds provide aheadline figure but state     that it excludes   administration and     custodian fees’...
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Fund Launches 2011

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Fund Launches 2011

  1. 1. FUND LAUNCHES A rose by any other name...Should alternative Ucits vehicles be described as LONG-SHORT FUNDS BYhedge funds? George Mitton looks at the Funds ASSET CLASSEurope survey of product launches by the industry’s Principle asset class No. of funds Multi-asset 7largest managers and finds opinion is divided Emerging-market bonds 4 Equities 2 Foreign exchange 2The regulated long-short fund is the most Schroders. But Swiss & Global/Gam, BlueBay Investment-grade corporate bonds 1revolutionary product to emerge from the Asset Management and HSBC Global Asset Money markets 1framework of Europe’s Ucits directive, but it Management said “Yes”. Sovereign bonds 1has posed a conundrum for providers when it This could reflect company policy on whether 18comes to describing these funds to customers. it is wise to describe Ucits long-short funds as Is it a hedge fund, or isn’t it? Long-short Ucits-compliant funds account for16% of fund launches by asset managers who LONG-SHORT FUNDS BY ASSETS UNDER MANAGEMENTresponded to our survey – that is, 18 launchesfrom the 20 respondents out of Europe’s top 50 Name of fund Funds under management as of 31 March, in € mlargest managers, covering the last nine monthsto 31 March 2011. Pioneer Absolute Return Bond 265.2 You could say more and more investors want Pioneer Absolute Return Currencies 250.2their mutual funds to act like hedge funds. Pioneer Absolute Return Multi-Strategy 176.1However, one interesting result of the survey is Investec GSF Emerging Markets Local Currency Dynamic Debt Fund 138.1that only 40% of the 18 long-short funds Pioneer Absolute Return Multi-Strategy Growth 136.9describe themselves as hedge funds. Allianz Structured Alpha Strategy 114 Asked if they would describe their long-short BlueBay Emerging Market Absolute Return Bond Fund 73fund as a Ucits hedge fund, Pioneer Global Gam Star Diversified Market Neutral Credit 48.8Investors said “No”, as did Investec Asset SWIP Currency Alpha Fund 47.9Management, Allianz Global Investors and Gam Star Absolute Emerging Markets 3924
  2. 2. hedge funds, but it could just mean that value are from Pioneer. The firm’s Absolutefirms do not see “long-short” as always being Return Bond Fund leads with €265.2m as ofsynonymous with the name “hedge fund”. March 2011. ‘Given the volatility Yet providers are happy to apply hedge fund in the market sincestrategy words to their Ucits products. “Global Equities outnumberedmacro” and “absolute return” are common It is also revealing to note that 40% of the long- the financial crisis,terms. Some even say they rely on “hedge fund- it is no surprise that short funds surveyed are multi-asset funds.style strategies”, while others promise low Equities, by far the dominant asset class amongvolatility and superior risk-adjusted returns. new funds as a whole, account for only two of there is a demand for In all cases, one theme occurs repeatedly: funds which claim the new long-short funds.these funds are intended to achieve a positive Four of the funds invest principally inreturn in all market conditions. Given the emerging-market bonds, making this the they can generatevolatility in the market since the financial crisis, returns even when the second most popular asset class in the table.it is no surprise that there is a demand for funds The fact that these funds are employing shortwhich claim they can generate returns even selling-type tactics perhaps reflects a more stock markets are down’when the stock markets are down. mature view of emerging markets, which sees past the simple growth story and notes aLimited tool box variation in performance between countries.Does the designation of hedge fund, or Another important question is fees. Aboutlack of it, make sense? Yes and no. 90% of the long-short funds have a retail share Long-short equities funds are like class and fees vary from 0.90% for Parvesthedge funds in that they can, Diversified Euro Inflation Plus Fund from BNPobviously, take long and short Parabis, to 2.5% for the Investec GSF Emergingpositions to potentially make Markets Local Currency Dynamic Debt Fund.money on stocks even when the All the funds have an institutional share classstock price declines. However, these and fees vary from 0.5% to 1.56%.funds cannot use many of the other However, as with the wider survey, it isstrategies in a typical hedge funds’ tool difficult to precisely compare fund fees becausebox, such as employing large amounts there is no consensus on how to present thisof leverage. This is forbidden by the Ucits information. Some funds charge additionalframework, which all the long-funds performance fees above their headline figure,in our survey comply with. So there such as the BlueBay Emerging Market Absoluteare important differences between a Return Bond Fund, which charges retailUcits-compliant long-short customers 20% of net alpha as well as its 2%fund and a hedge fund as it fee. Other funds state that the fee excludesis normally understood. administration and custodian fees. It is interesting to see which Of course, the most important question iscompanies are the most how these funds perform. Absolute returnenthusiastic adopters of the format.Of the nine firms which launched HIGHEST RETAIL FEES, LONG-SHORT FUNDSlong-short funds in the nine monthsending 31 March, four broughttwo or more to the Investec GSF Emerging Markets Local Currency Dynamic Debt Fund 2.50%marketplace. The most Investec GSF Emerging Markets Blended Debt Fund 2.22%ebullient are Pioneer and Investec GSF Emerging Markets Currency Fund 2.06%Swiss & Global/ BlueBay Emerging Market Absolute Return Bond Fund 2% (+ 20% of net alpha)Gam, Gam Star Diversified Market Neutral Credit 1.90%whicheachlaunched LOWEST RETAIL FEES, LONG-SHORT FUNDSfour. If assets under Parvest Diversified Euro Inflation Plus 0.90%management are taken as a Pioneer Funds – Absolute Return Bond 0.95%measure of success, then Schroder ISF Currency Absolute 1% or 0.5% depending on share classPioneer is a clear winner . The Return USD/EURtop three long-short funds in Pioneer Funds – Absolute Return Currencies 1.00%the survey in terms of net asset Pioneer Funds – Absolute Return Multi-Strategy 1.05% 25
  3. 3. FUND LAUNCHES FIVE EXAMPLES OF LONG-SHORT FUNDS Name of fund Pioneer Funds – Investec GSF Emerging Absolute Return Bond Markets Local Currency Dynamic Debt Fund Name of company Pioneer Global Investec Asset Investments Management Date of launch 13/12/11 31/01/11 Country of domicile Luxembourg Luxembourg Principal asset class Sovereign bonds Emerging markets bond Majority Exposure Through derivatives Direct Principal geography for investment Europe Emerging Markets Funds under management 265.2 138.1 at 31 March 2011 (in millions of €) Name of fund manager(s) Tanguy Le Saout Peter Eerdmans & Cosimo Marasciulo Investment objective Achieve a positive return in all market The fund aims to achieve long-term conditions by investing primarily in a total returns primarily through diversified portfolio consisting of any type Investment in public sector, sovereign of money market instruments and debt and corporate bonds issued by emerging and debt-related instruments market borrowers Is strategy long-short or long-only? Long-short Long-short Which benchmark? n/a JPM GBI-EM Global Diversified USD Active or passive? Active Active Ucits compliant? Yes Yes Would you describe it as a No No Ucits hedge fund? Exchange-traded product? No No Open-ended? Yes Yes Retail share class? Yes Yes State fee 0.95% 2.50% (“A” shares est. TER) Institutional share class? Yes Yes State fee 0.50% 1.56% (“I” shares est. TER) Subject to Gips compliant reporting? Unavailable Yes State Gips-compliant return for three Unavailable -2.99% months ending 31 March 2011 State most recent performance data, Unavailable Unavailable if available26
  4. 4. * Excludes administration and custodian feeGam Star Diversified Parvest Diversified Euro BlueBay Emerging MarketMarket Neutral Credit Inflation Plus Absolute Return Bond FundGam BNP Paribas Investment BlueBay Asset Management Partners Luxembourg02/07/10 17/09/10 20/07/10Ireland Luxembourg LuxembourgInvestment-grade corporate bonds Multi-asset Emerging-market bondsThrough derivatives Through derivatives DirectGlobal Global Emerging Markets48.8 10 73DCI Pierre Capsie David DowsettCapital appreciation with low volatility The fund invests at least 2/3 of its The Fund’s aims to provide an absoluteand low correlation to fixed income assets in equities or equity-linked return by using a strategy of longmarkets through investing primarily securities and/or bonds and/or and short positions in a portfolioin investment grade credit money-market instruments that, and of fixed income securities from also in derivatives on this type of asset emerging market issuersLong-short Long-short Long-short3-Month Libor Eurostat Eurozone HICP n/a ex Tobacco series NSAActive Active ActiveYes Yes YesYes Yes YesYes No NoYes Yes YesYes Yes Yes1.90%* 0.9% (management fee) 2% + 20% of net alphaYes Yes Yes1.50%* 0.5% (management fee) 1.5% + 15% of net alphaYes Yes No0.89% 1.12% (cumulated net of fees return) n/an/a n/a +8.81% gross cumulative since inception 27
  5. 5. FUND LAUNCHESstrategies have attracted criticism from some while others say the information is unavailable.quarters for not performing well enough during So will this new class of Ucits-compliant long-the downturn – a time when short-selling ‘These funds cannot use short funds continue to gain in popularity? Willstrategies ought to have flourished. many of the other there be more launches in future? Have the funds in this list managed to The performance data from this survey isgenerate the “positive returns in all market strategies in a typical inconclusive as the sample size is so small.conditions” which they promise? hedge funds’ tool box, However, of the five funds which provided The question is difficult to assess because only Gips-compliant data for the three monthsabout half the funds in the survey provided any such as employing large ending 31 March, the average return wasperformance data. Of the minority that were amounts of leverage’ 0.69%. In contrast, the average Gips-compliantable to provide Gips-compliant returns for the performance of equity long-only funds in ourthree months ending 31 March, Scottish survey was 2.77%.Widows Investment Partnership’s (Swip) But although these returns are hardlyCurrency Alpha Fund had the best breathtaking, there is considerable enthusiasmperformance with 3.2%. in the industry for these kinds of funds and this The worst-performing was the Investec GSF will surely give them a momentum. SomeEmerging Markets Blended Debt Fund, which advocates of absolute return strategies are evenlost 4.4% in the same period (this report is not saying that in future, all mutual funds willGips-compliant). operate like hedge funds. If they are right, Some of the funds were launched too recently today’s breed of Ucits-compliant long-shortto allow them to provide performance figures, funds are a step in that direction. fe28
  6. 6. SPONSORED PROFILELook to high-yieldfor the long-termInvestors with time to spare could do worse than consider sub investment grade debtEvery cloud has a silver lining, but for “We look at each company as a singleincome-seeking investors it has been story – it’s very different to investment grade,hard to find the glimmer of hope in where you pay more attention to sectors,” ‘This is a unique assetrecent years. class – you can’t ignore says Marioni. Global recession has meant that European Default rates are particularly lowCentral Bank base rates have been held at just at the moment; Moody’s, the rating agency, it any longer’1% for the past two years – lifted in April forecasts a European speculative default rate ofadmittedly, but only to a scant 1.25%. 1%, against 1.6% in the United States at the But one area of fixed income is still end of 2011.making a respectable return – high-yield or Says Berthelot: “High-yield is unique insub-investment grade debt. This is an area that terms of its risk-reward ratio – and it’shas grown significantly in the past the only way to get above 5% in fixeddecade, according to Philippe Berthelot, head income. For a long-term investment, it isof credit at Natixis Asset Management (NAM). extremely appealing.” “In 2011, the 214 issuers and 378 With confidence like that, maybe that silverissues added up to a market total of €160bn, lining won’t be so hard to find after all?compared to only 94 issuers and 144issues in 2001, when the market totalled Natixis Asset Management is the Europeana mere €20bn,” he says. Philippe Berthelot, (left) head of credit at Natixis expert of Natixis Global Asset Management One reason for the growth is a switch Asset Management and (right) Vincent Marioni, co-portfolio manager with Berthelot with around €298 billion of assets underfrom bank loans to debt, a response management. (Source: Natixis Assetto the solvency requirements of Basel III, have 12 analysts covering corporate debt, two Management as of 31 March 2011).which increase the capital and liquidity of whom are dedicated to high-yield. It’s one of More information at www.am.natixis.comrequirements for financial institutions. our greatest strengths at NAM.” But sub-investment grade still carries a Each investment is considered onhigher risk, making the level of research an its merits, according to Vincent Marioni, co-asset manager can provide critical to the portfolio manager with Berthelot, and the fundperformance of the fund. Says Berthelot: “We takes a strictly bottom-up approach.THREE RECENT INVESTMENTS • Ontex: Europe’s private labels market leader in the manufacture of baby nappies, as well as feminine hygiene and adult incontinence products, it is a stable company with good sales and cash flow. “We like Ontex because it has good financial visibility for the next three to five years,” says Vincent Marioni. • Goodyear: tyre manufacturers around the world are at full production and Goodyear is no exception, says Marioni. “This is a recovery story, and what we are aiming at is the business rebound. We are comfortable that the cash flow will be there for the next two years.” • Geo Travel: Geo Travel is mainly a seller of airline tickets. But though global recession has hit airlines, by cutting ticket sales by up to 20 per cent Geo has maintained steady growth of between 3 and 5% a year. The trick is that it primarily retails through the internet and consumers are still switching from old-style travel agencies to buying via the web. “In Europe, only a third of customers buy through the net so there is still more growth to come,” says Marioni. 29
  7. 7. FUND LAUNCHESCatapulting theirway to the topAs assets under management grow in Europe’s investment industry,George Mitton finds out about the companies which launched the mostproducts, their most popular asset classes, and feesMulti-asset and emerging market bond fundsare among the top three most prolific product PRINCIPLE ASSET CLASSlaunches for many of Europe’s largest asset ‘The average fundmanagers. Not surprisingly, equity funds are the No. of funds launches per companymost popular. Equities 47 Funds Europe contacted the biggest 50 was less than six’ Multi-asset 18European investment firms by assets under Emerging-market bonds 10management and asked them for details about Investment-grade corporate bonds 8all funds launched in the nine months ending Multi-bonds 731 March 2011. We received information from High-yield bonds 520 firms about 111 funds. Sovereign bonds 5 The most prolific company to launch funds in Convertible bonds 3the nine months was BNP Paribas Investment Traditional mixed assets 3Partners, with 16, closely followed by HSBC Foreign exchange 2Global Asset Management with 15 and Swiss & Money markets 2Global/Gam, 12. The average fund launches Real estate 1per company was less than six. FIRMS No. of funds BNP Paribas IP 16 HSBC Global 15 Swiss & Global/Gam 12 Schroders 9 Eurizon Capital 9 Swisscanto 7 Pioneer Global 7 Allianz Global Investors 6 Aberdeen 6 Investec 5 BlueBay 4 Threadneedle 3 Standard Life 2 Nordea 2 JP Morgan 2 Fidelity International 2 Swip 1 M&G Investments 1 Invesco 1 DWS Investment 130
  8. 8. COUNTRY OF DOMICILE ACTIVE MANAGEMENT? ‘Seven in ten funds No. of funds Passive Luxembourg 68 had an institutional 17% Ireland 21 share class and here UK 7 France 6 the fees vary from 0.1% Switzerland 4 to 1.56%’ Belgium 3 British Virgin Islands 1 Italy 1 Active 83% The Ucits directive continues to exert a hugeinfluence as an industry standard, with morethan 90% of the new funds in the survey UCITS COMPLIANT?claiming to comply with it. Performance reporting that complies with the NoGlobal Investment Performance Standards 7%(Gips) – a transparency initiative – is lesswidespread, though Gips still applies to themajority of funds at 57%. Nearly all the fundsin the survey are actively managed, with only17% stated to be passive. The total assets under management for all thenew funds was €9.3bn as of March 2011, which Yesworks out at €84m per fund on average. 93% It will not come as a surprise that equitieswere the most popular asset class, accountingfor 42% of the funds in the survey. This SUBJECT TO GIPS COMPLIANTcorresponds with research from other sources, REPORTING?such as a recent report from Lipper, which saidequities account for more than a third of funds No N/aregistered for sale in Europe. 35% 8% Multi-asset funds were the second mostpopular in our survey, followed by emergingmarket bond funds. The popularity of this last HIGHEST RETAIL FEES, EQUITY LONG-ONLY FUNDS Investec GSF Africa Opportunities Fund 3.47% Yes Allianz RCM Brazil 2.25% (1.75% Mfee, 0.50% admin fee) 57% Theam Harewood Quant Guru US Equity 2% maximum * Allianz Euroland Equity SRI 1.80% (1.50% Mfee, 0.30% admin fee) Allianz RCM Global Metals and Mining 1.80% (1.50% Mfee, 0.30% admin fee) EXCHANGE-TRADED PRODUCT? * management and functioning fee all taxes included No 20% LOWEST RETAIL FEES, EQUITY LONG-ONLY FUNDS HSBC MSCI World ETF 0.35% HSBC MSCI Canada ETF 0.35% Schroder (UT) UK Core 0.35% HSBC MSCI Pacific ex Japan ETF 0.40% Yes HSBC MSCI Turkey ETF 0.60% 80% 31
  9. 9. FUND LAUNCHES ‘Some funds provide aheadline figure but state that it excludes administration and custodian fees’ INSTITUTIONAL SHARE CLASS? No 30% Yes 70%asset class perhaps reflects a growing sense thatsome emerging markets have become saferborrowers than countries in western Europe. Luxembourg was far and away the domicileof choice in this survey, with more than 60% ofthe newly launched funds registered here.Ireland came second with a fifth of funds, whileother domiciles including the UK, France andSwitzerland had fewer than ten funds each.The fees questionThe survey revealed a wide variance in fees.Nine in ten funds had a retail share class andthe fees charged vary from 0.3% for Pioneer’sEuro Liquidity Fund, a money market fund, to3.47% for the Investec GSF AfricaOpportunities Fund, a long-only fund that Others have a more complicated structure,invests in African equities. such as the Eurizon Focus Capitale Protetto RETAIL SHARE CLASS? Seven in ten funds had an institutional Protezion fund, which starts with a 0.3% retailshare class and here the fees vary from 0.1% fee during the subscription period but rises Noto 1.56%. to nearly 1% after “the first investment in 11% There are many difficulties with comparing risky activities”.fees between funds, namely a lack of consensus Analysis of the data reveals that the averageon how to report the figures. retail fee is 1.04% and the average institutional Some funds provide a headline figure but fee is 0.72%. However, these are likely to bestate that it excludes administration and underestimates because they excludecustodian fees. Some funds charge a administration and custodian fees that were notperformance fee of about 20% if the fund provided, and fail to take account of Yesoutperforms a benchmark. performance fees. fe 89%32

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