Threadneedle Pan European Absolute Alpha

Investment Objective

The Threadneedle Pan European Absolute Alpha Fund aims to generate an absolute return, with a target gross return of 6-8% per annum above the 3-month EURIBOR over a market cycle (a three to five year investment horizon). The fund aims to achieve this objective, over the long term by investing mainly in equities and equity-related derivatives of companies based in Europe.

Latest Meeting Note

Meeting 16 Mar 2020

The research team met with Frederic Jeanmaire (Portfolio Manager) and Francis Ellison (Client Portfolio Manager) at a recent cap intro conference. The fund is a European focused equity long short strategy, focusing on single stock longs ...

The research team met with Frederic Jeanmaire (Portfolio Manager) and Francis Ellison (Client Portfolio Manager) at a recent cap intro conference. The fund is a European focused equity long short strategy, focusing on single stock longs and short for alpha generation. The fund targets volatility between 6-10%, with a stable long term average of 8%, across a portfolio of around 35 longs and 65 shorts, with short positions capped at 2%. The fund traditionally runs with a net long exposure of 40% with gross around 150% across the track record. Historic exposure levels have remained relatively stable as the PM does not aim to generate alpha via market timing. The core focus of the long book is quality growth, with firms identified via a 3 pronged approach. One strand is focused on Porter’s 5 Forces, which is commonplace across Columbia Threadneedle’s European and Global equity desks. Each company analysed is given a score per area, eg threat of new entrants, pricing power, etc, with the long book consisting of high scoring companies. The manager also looks to identify growth prospects but at reasonable prices, using a combination of free cashflow yield and long term growth potential (>10%). The final aspect required for the long book is the presence of a catalyst, this can either be a product, cost-cutting opportunities or other synergies. Ultimately, these quality growth companies will exhibit economic moats that enable them to maintain a sustainable competitive advantage. The short book consists of low quality companies that continue to decline. These companies will have poor Porter’s five forces scores, weak growth potential and often a negative catalyst such as declining sales or significant debt refinancing. While single stock long and short positions are used to capture alpha, the manager also implements pairs trading to identify intra-sector winners and losers exposed to the same trends, threats and risks. There is no prescribed allocation between these three sources, with allocation depending on the level of conviction. Positions are placed with no formal stop losses but once a position hits a 10% loss, a reassessment of the investment thesis is triggered.

Performance

JAN FEB MAR APR MAY JUN JUL AUG SEP OCT NOV DEC YTD
2023 0.2 0.6 0.6 0.0 0.7 0.1 0.0 0.7 0.0 0.5 0.8 0.4 0.9
2022 0.7 0.1 0.8 0.5 1.0 0.2 0.7 0.9 0.1 0.1 0.5 0.3 0.3

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