Neptune’s Alexander outlines the long and short of global equity sectors
Ted Alexander, manager of the Global Long Short Sector Fund launched by Neptune on 1 November has provided further details of the thinking behind the product at a briefing in London.
“There has never been a fund like it before,” Alexander said; adding that it is not an absolute return fund, nor a hedge fund, although it can use leverage and go short.
The fund has been designed to run alongside Neptune’s existing £1.2bn Global Equity Fund – managed by Robin Geffen – but picking sectors rather than individual stocks.
This selection reflects sector positions of the Neptune process. But, where the Global Equity Fund can overweight preferred sectors, the Long Short Sector Fund can leverage its long position, and likewise go short where the standard Global Equity Fund would apply an underweight position. Since there are no futures or ETFs available on sectors – as yet – it means the Long Short fund relies on using baskets of stocks.
The starting point is to take the 30 largest stocks in each sector. However, it may have to adjust the baskets. For example, in energy Alexander notes that simply picking the top 30 stocks by market capitalisation risks leaving it dominated by exploration and production companies. Once a basket is determined Neptune takes out a swap on it.
This does leave the product open to questions of counterparty risk. However, Alexander said that this risk is mitigated by various factors. Morgan Stanley is the counterparty, but it is not responsible for custody or collateral, that rests with State Street. HSBC is set up as a secondary broker.