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Risk-adjusted equity returns critical: Evergreen Ratings

•5-Angela-Ashton

Evergreen Ratings recently awarded the Alceon High Conviction Absolute Return Fund a “Commended” rating for its “tried and tested processes, with risk considerations at its core.”

They suggest that fund manager Alceon Liquid Strategies (ALS) has a strong track record of consistently delivering above-average equity returns with low volatility. It demonstrated this capacity with positive returns in the March quarter last year, when global equity markets were in turmoil.

In a low-rate environment, where investors have turned to growth assets to maintain returns, it is important to consider an investment manager’s approach to risk management.

The Alceon High Conviction Absolute Return Fund is a variable long-short equity fund that focuses on high conviction investments in listed Australian equities. The fund is typically exposed to 20 to 30 stocks, while the Fund’s investment mandate also allows ALS to take smaller positions in unlisted and global equities, as well as derivatives and foreign exchange to hedge risk. It is a flexible investment strategy that allows the manager to be opportunistic in response to market inefficiencies.

The fund provides exposure to high conviction investing that minimises some of the risk inherent in that approach. It says the ALS team is highly disciplined, avoiding the risk of “falling in love” with a holding or an investment thesis.

The Fund was launched in February 2017 and has delivered compound annual returns of 19.9% since inception to July-21, compared with 10.5% for the ASX 200 Accumulation Index over the same period.

The Fund has produced this above-average return with average annual volatility of 12.6%, compared with volatility of 15% a year for the ASX 200 Accumulation Index.

ALS’s risk management process is underpinned by an intense focus on risk adjusted return and capital preservation. Risk management tools include daily internal reporting of portfolio exposures and liquidity, and monitoring of sector and single name concentration risk.

ALS’s portfolio positioning in March 2020, as global equity market sentiment changed in response to the onset of COVID, demonstrates that the manager does indeed react proactively as changes in risk are identified. The portfolio generated positive returns in the March quarter 2020.

The Fund can turn to cash, leverage its positions and adjust market exposure nimbly. The Manager has indeed used these tools and has done so for the benefit of investors.

Alceon Liquid Strategies is part of Alceon Group, a multi-strategy alternative investment manager established in 2010 with funds under management of almost $3 billion across asset classes including real estate, private equity and listed equities.

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