We recently removed the SVM UK Opportunities Fund from the Wealth 150 list of our favourite funds in each sector. The fund has recently opted to make use of sophisticated investment tools known as ‘shorting’ (please see explanation below). We had initial concerns that this was changing the entire remit of the fund and that the manager, Neil Veitch, had little experience in shorting.
We have since had further details of the changes after meeting the fund manager and this has allowed us to review the fund in more depth. While Neil Veitch will use shorting to hopefully profit from falling share prices, it is now clear that the use of shorting will be limited to 20% and a more realistic figure would be less than 10% of the overall portfolio. This means the portfolio has not been overhauled as we originally anticipated and that these measures have been taken to keep investors interests at heart.
The ultimate aim of using additional investment techniques is to lower the volatility of the fund. The fund is more aggressive than its peers and it has known to be extremely volatile over short periods of time, so we believe this flexibility should benefit investors over time.
In terms of Neil Veitch’s experience, he has been involved in contributing ideas to SVM’s existing hedge funds since he joined SVM at the end of 2005. He has also been appointed as the deputy fund manager on the SVM UK Absolute Alpha Fund which reflect SVM’s conviction behind his capabilities.
Having had the chance to review the fund again, we now feel comfortable with the recent changes and believe Neil Veitch should deliver long term outperformance. With that in mind, the fund has been reinstated onto the Wealth 150.
Meera Patel, Senior Analyst
Traditionally investors buy assets they believe will rise in value. Shorting is different.
The principle is that the fund manager actually sells shares they don't own. This in effect means he owes the buyer the shares. The buyer agrees they will not take delivery of the shares for, say, six months and the fund manager hopes that by then the share price will have fallen. After six months the fund manager purchases the shares in the market and passes them on to his buyer. The difference between the two prices is the profit or loss. For example:
1. Fund manager sells short 10,000 shares at £2 each = £20,000
2. Purchase these shares six months later at 80p each = £8,000
3. Profit = £12,000
In this example had the share price risen by the same amount, it would have cost the manager more to purchase the shares than they made from selling them and they would have made a £12,000 loss. There are many ways of effecting this investment strategy and managers may short by entering into contracts with a broker and not actually take delivery of the shares. Therefore this is not an exact description of how it happens, and ignores transaction and other costs, but it hopefully explains the principle.
We have since had further details of the changes after meeting the fund manager and this has allowed us to review the fund in more depth. While Neil Veitch will use shorting to hopefully profit from falling share prices, it is now clear that the use of shorting will be limited to 20% and a more realistic figure would be less than 10% of the overall portfolio. This means the portfolio has not been overhauled as we originally anticipated and that these measures have been taken to keep investors interests at heart.
The ultimate aim of using additional investment techniques is to lower the volatility of the fund. The fund is more aggressive than its peers and it has known to be extremely volatile over short periods of time, so we believe this flexibility should benefit investors over time.
In terms of Neil Veitch’s experience, he has been involved in contributing ideas to SVM’s existing hedge funds since he joined SVM at the end of 2005. He has also been appointed as the deputy fund manager on the SVM UK Absolute Alpha Fund which reflect SVM’s conviction behind his capabilities.
Having had the chance to review the fund again, we now feel comfortable with the recent changes and believe Neil Veitch should deliver long term outperformance. With that in mind, the fund has been reinstated onto the Wealth 150.
Meera Patel, Senior Analyst
Key Features of the SVM UK Opportunities Fund
Key Features of the SVM UK Absolute Alpha Fund
Shorting - an explanation
Traditionally investors buy assets they believe will rise in value. Shorting is different.
The principle is that the fund manager actually sells shares they don't own. This in effect means he owes the buyer the shares. The buyer agrees they will not take delivery of the shares for, say, six months and the fund manager hopes that by then the share price will have fallen. After six months the fund manager purchases the shares in the market and passes them on to his buyer. The difference between the two prices is the profit or loss. For example:
1. Fund manager sells short 10,000 shares at £2 each = £20,000
2. Purchase these shares six months later at 80p each = £8,000
3. Profit = £12,000
In this example had the share price risen by the same amount, it would have cost the manager more to purchase the shares than they made from selling them and they would have made a £12,000 loss. There are many ways of effecting this investment strategy and managers may short by entering into contracts with a broker and not actually take delivery of the shares. Therefore this is not an exact description of how it happens, and ignores transaction and other costs, but it hopefully explains the principle.
