Fund is reaching its target . . . having moved the goalposts
INVESTMENTIN fund Smith & Williamson Enterprise is one of a growing numbernu of vehiclesveh set up to provide investorsinvesto with some certainty about the returns they can expect from their money.
It is a targeted absolute return fund, looking to make money in all market conditions. It offers higher returns than a savings account, but without guaranteeing investors’ capital.
Though the fund has been run in some form since 2006, it has been available to UK investors only for seven years (it was based offshore before May 2010).
Yet the manager seems unclear over its precise aim. In March, its objective – as stated in the fund’s investor factsheet – was to produce a target annual return of 8 to 10 per cent.
But now in its latest missive it says the aim is to achieve a target annual return of three-month Libor (London Interbank Offered Rate) plus four percentage points.
With three-month Libor at about 0.32 per cent, it results in a target of 4.3 per cent – far less demanding than the previously stated target. It means that over the past five one-year periods, it has now achieved its aim four times out of five, only failing in the 12 months to April 30, 2016. Under the previous target, it had come up trumps only twice over the same periods.
Smith & Williamson says the wording change is to dispel any misunderstanding that it may be a ‘pure’ equity-based fund, though elsewhere it clearly states that it is a ‘long/short fund’, making money when share prices rise, and on occasion when individual company’s shares fall.
It is all rather disingenuous (reinventing the aims to best suit the past performance), especially when the performance over the past five years is superior to most other targeted absolute return funds. Only eight out of 62 like-minded funds have better performance numbers.
Fund manager Mark Boucher, who returned to Smith & Williamson to run the fund after a spell at hedge fund specialist Millennium Capital Partners, prefers to concentrate on the fund’s strong performance since the Brexit vote.
He says the plunging pound that ensued caused a divergence between the strength of some firms’ balance sheets and the profitability of their businesses, leading to ‘new opportunities’ for shrewd investors.
While the fund is more ‘long’ than ‘short’ of the market, Boucher is concerned that equity valuations are ‘stretched on most levels’. He says that if the market is not to make a correction, firms must soon start upgrading their earnings forecasts.
He ‘short-sold’ the shares of major retailers such as Tesco, Sainsbury’s and Morrisons for most of the past four years in the hope of making money if the share prices fell, but he has now closed these positions. He cites regulatory reasons for not revealing what stocks he is currently shorting.
Given the current economic and political uncertainty, he says his long positions have common themes. ‘I am looking for firms whose fortunes are not dependent upon economic growth. Maybe they are doing well because of their idiosyncratic behaviour.’
Examples, he says, include software company Micro Focus, the fund’s third-biggest long position. He likes the way it is able to take over technology businesses and squeeze bigger profit margins from them.
Another key holding is Melrose Industries, renowned for taking over companies, knocking them into shape and then selling at a profit.