Managers prepare hedged and gold share classes to cushion falls

Fund managers are launching innovative share classes for their products to shield investors from the real threats of declining value in the world’s major fiat currencies, and sharp falls in eurozone shares.

French manager Axa Investment Managers and Australia’s Ashton Funds have each announced new share classes, for their Axa WF Framlington Eurozone, and multi-manager hedge funds, respectively.

The SolEx share class on Axa Framlington’s Eurozone fund includes a systematically applied derivatives overlay, to soften losses from market falls and ideally also reduce volatility in the portfolio.

The SolEx units will still allow Axa Framlington’s clients to get long-only exposure to eurozone equities. But they will also then use out-of-the-money index puts and total return swaps to provide a partial hedge limiting the effect of widely-expected market falls.

The puts are relatively cheap, the group said, so the cost of their use should be low.

Axa pointed to “strong risk-adjusted return attributes” of the underlying fund, including information ratio of 1.90 over 12 months, 1.60 over three years and 1.11 over five years.

But Axa IM is not the only manager launching classes for strong-performing products.

Ashton Funds, born in Australia but with offices also in London, has established a share class denominated in bullion for its offshore multi-manager hedge funds, called Ashton Select and Ashton Performance.

It has done this, even though only very hefty fluctuations in FX rates would have negated some of the positive performances of the funds themselves.

The gold share class began in November on Ashton’s products, which can be accessed by sophisticated investors for $50,000.

Although the funds are denominated in US dollars, and share classes allow access via three other tenders, the gold shares’ returns reference the change in gold’s price, combined with the portfolio returns

Nick Raphaely, Ashton’s executive director, said the gold class structure should work to mitigate short-term volatility and preserve capital value in absolute terms.

Ashton Performance has made an annualised return of 27.1% between launching in November 2005 and October 2011. This included 56.7% in 2007, and a relatively mild drawdown of 15.6% the next year, according to figures from the group.

Raphaely said “the steady rise in the gold price merely reflects the public’s loss of confidence in paper currencies.”

Many investors fear the world’s major paper currencies – and primarily the US dollar and euro – are set to fall as the economies underlying them each struggle with indebtedness and below-average growth.

Some managers such as London’s Record Currency Management, have even launched funds to take advantage of stress on paper currencies – in Record’s case the euro.

“It is a response to the commercial potential in capitalising on the wide range of views in the market on the long-term viability of the euro in its current form,” the UK-based firm said. “This range of views encompasses a eurozone fracture at one end, to full poitical, monetary and fiscal union at the other.”

Record CM CIO Bob Noyen, said the fund would seek “a specific window of opportunity over the next few years”.


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