The Americas have stolen column inches this year for a number of reasons. Whether Donald Trump or Hillary Clinton will end up the leader of the free world is one of the most hotly contended PR battles leading up to just about any US presidential election. In Latin America, Brazilian president Dilma Rousseff faces an impeachment trial and local markets will undoubtedly be affected at varying degrees of intensity.
This landscape begs for an investment strategy that can tap into opportunities in these markets without being at the full mercy of its inherent risks.
A fully diversified absolute return vehicle that targets market neutrality while seeking out positive returns regardless of market movement might be the solution. Our long/short approach means we can also exploit the opportunities with greater conviction.
While any sudden shifts in risk appetite or volatility can potentially present us with investment headwinds in the longer horizon strategies, the way this fund is constructed generally means it is insulated from any sharp directional changes.
For example, in our mid-horizon portfolio, the more nimble contrarian reversal strategies have been shown to work particularly well after market dislocations and corresponding jumps in volatility, which are becoming more commonplace.
After the early stage sell-off at the start of the year with the widespread hedge fund deleveraging that followed, many of our targeted reversal strategies provided liquidity to investors who needed it, irrespective of the cost.
Two themes dominate the outlook; the US Federal Reserve interest rate policy and the presidential election in November. While we do not represent a view in terms of the direction or speed of interest rate changes, our positioning across both US large and small cap will reflect the changing expectations of other investors and market participants.
This might be based on the actual near-term performance of stocks that will benefit from rates that rise or stay the same, or on sentiment shift from management teams and sell-side analysts towards companies in either camp.
Similarly, as the US presidential election looms, we expect this will have an impact on markets and sentiment. While we rarely see any clear stock-specific effect from a Democratic or a Republican win, this time around that predictability is even murkier, as Trump is far from a typical republican candidate.
Where modelling against such unknowns is difficult, the team will look to insulate the fund from the potential risks, such as reducing the positions in more opaque sectors or stocks as the election nears. They also will also use the allocation to mid-horizon portfolio proactively if they think there is an opportunity in the increased volatility.
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Fund Specific risks
Exchange rate risk –BSF Americas Diversified Equity Absolute Return Fund, invests a large portion of assets which are denominated in other currencies; hence changes in the relevant exchange rate will affect the value of the investment.
Emerging market risk – Compared to more established economies, the value of investments in developing Emerging Markets may be subject to greater volatility due to differences in generally accepted accounting principles or from economic or political instability.
Complex Derivative Techniques – The strategies utilised by the fund in this document involve the use of derivatives to facilitate certain investment management techniques including the establishment of both ‘long’ and ‘synthetic short’ positions and creation of market leverage for the purposes of increasing the economic exposure of a fund beyond the value of its net assets. The use of derivatives in this manner may have the effect of increasing the overall risk profile of the funds. Investors in these funds should understand that the funds are not guaranteed to produce a positive return and as an absolute return product, performance may not move in line with general stock market trends as both positive and negative share movements affect the overall value of the funds. The Managers employ a risk management process to oversee and manage derivative exposure within the funds.
Financial Markets, Counterparties and Service Providers – The BSF Americas Diversified Equity Absolute Return Fund, may be exposed to finance sector companies, as a service provider or as counterparty for financial contracts. Liquidity in the financial markets has been severely restricted, causing a number of firms to withdraw from the market, or in some extreme cases, become insolvent. This may have an adverse effect on the activities of the fund.
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