Fund manager Sarasin & Partners is claiming the Ucits III wrapper has given actively managed funds a better means to tackle stagflation than structured products with a standard capital guarantee.
Harry Talbot Rice, manager of the £203.5m Sarasin EquiSar IIID fund, told adviser magazine FT Adviser the wider investment powers of Ucits III enable the fund to target RPI plus 3.5% pa over rolling periods of at least three years. Derivatives have also enabled the portfolio to build in a much greater degree of capital protection, he said.
But, according to Talbot Rice, if markets fall and inflation persists, structured products with a standard capital guarantee would simply return investors' original sums, regardless of how much inflation had devalued them. By contrast, he argued, an actively managed fund can deliver returns in line with inflation over the time horizon of a structured product. "We're not constrained to that limit in the same way a structured product might be," said Talbot Rice.
Sarasin's EquiSar IIID fund is able to reduce its net long exposure to as little as 30% under normal market conditions, with a maximum normal net exposure of roughly 60%.
The fund also buys put options, and can trade variance swaps to express views on market volatility, as well as financing the purchase of one set of options by selling another set. Under Ucits III, the fund can theoretically be as much as 100% invested in cash if necessary.
However, Rupert Tate, head of IIID products, warned investors off thinking of EquiSar IIID as an absolute return vehicle. "We will give you as much of the upside as we can when the market is going up. But when the market is weak, we will turn to increasing capital protection and market volatility," he said.
