The Investment Strategy of the Company aims to limit market risk in the Portfolio by seeking to maintain a cash neutral position through the construction of a long/short portfolio predominantly comprised of a series of correlated Long and Short Positions.
One of the significant advantages of market neutral portfolios is that they aim to generate positive returns in both positive and negative markets - providing potentially valuable diversification benefits to investors.
The Investment Strategy is based on a strategy that members of the Investment Manager’s team have employed since 2002.
The Investment Strategy and process is based on the Investment Manager’s qualitative analysis that seeks to identify Securities with poorer quality fundamentals that can be considered for Short Positions; and those with higher quality fundamentals that can be considered for Long Positions. This style of market neutral investment is referred to as a Pair Trade
The Portfolio is expected to contain approximately 50-80 Securities that will be selected and actively managed in 25-40 pairs to comprise the core of the Portfolio (no less than minimum 60.0% of the total Portfolio). There is scope to complement the Portfolio via a limited proportion of uncorrelated pairs and or uncovered long or short stock positions. The Investment Manager will actively manage the Portfolio.
The Portfolio is expected to use leverage of up to five times NAV of the Portfolio. This means that compared with an unleveraged fund, assuming that the Portfolio reaches its maximum gross exposure, then a 1.0% increase in the return on assets will result in a 5.0% return to investors; and minus 1.0% decrease in the return on assets will result in a 5.0% decrease in returns to investors.
The market neutral portfolio is expected to have very low market and sector exposure and one where returns will reflect the selection success in choosing long and short positions. This provides investors with an opportunity to invest in a portfolio seeking to capture stock alpha rather than market beta. Alpha can be defined as the investment manager’s skill in selecting stocks while beta relates to overall market risk.