Fixed Income Macro Fund: Aviva Investors

Shortlist: Best global macro hedge fund

Aviva Investors’ Fixed Income Macro (FIM) Fund has delivered strong and consistent returns since inception in July 2008. Despite launching shortly before the Lehman crisis, FIM returned 3.8% net of fees in 2008.

In 2010 when markets were characterised by a risk-on/risk-off mentality and many macro funds struggled, the fund returned a positive 6.84% net of fees versus benchmark performance of 0.55%. This equates to outperformance of 6.29% which compares well with some other macro funds. Since launch the fund has generated an annualised returns of 8.7%, with volatility of 6.6%.

The long-term performance is attributed in part to portfolio manager Shahid Ikram and his team.

The fund aims to generate returns by anticipating correctly the general direction of markets and by identifying relative value opportunities in individual securities.

Around 70% of trading is focused on macro opportunities, including outright and conditional trades on future interest rates, inflation levels and foreign exchange. The fund can also exploit opportunities in equities and commodities through derivatives. The remaining 30% of the fund’s trades are focused on exploiting arbitrage opportunities in cross-market trading, duration trading, yield curve positioning and individual stock selection.

The investment team’s structured process enables opportunities with attractive risk/reward ratios to be identified.

Risk control and trade analysis systems allow the team to exploit opportunities through optimal calibration of trade size, stop losses, profit targets and disciplined risk management.

The fund has a strong focus on downside risk management and a disciplined approach to building its target return through a series of individual targets for each trade.

The team believes factors differentiating the strategy include a strong focus on downside risk management. While the fund aims for absolute returns throughout the cycle, the team does not try to achieve this while sacrificing low volatility.

The approach is to build the target return through a series of individual goals for each trade and an unemotional use of stop losses.

The fund runs five to six low-correlated themes across a number of positions within each theme. This results in a well-diversified portfolio with low volatility. The team believes a major strength of this strategy is that it is not reliant on one sector or one source of outperformance.

Aviva, the sixth-largest insurance company in the world, wholly owns Aviva Investors. This gives the team stability for the business model.

Fund facts
Full name of fund: Fixed Income Macro Fund
Name of portfolio manager: Shahid Ikram
Name of investment/management company: Aviva Investors
Contact information: Raphaelle Moysan, Client Portfolio Manager, 1 Poultry, London EC2R 8EJ ([phone]; [e-mail]; www.avivainvestors.co.uk)
Launch date: July 25, 2008
Assets under management: £203.6 million (at March 31, 2011)
Net cumulative performance since inception: 125.87% (at March 31, 2011)
Annualised return: 8.72% (at March 31, 2011)
Annualised volatility: 6.6% (at March 31, 2011)
Sharpe ratio: 1.12 (at March 31, 2011)
Strategy: fixed income macro
Share classes: tranche 1 (founder investors only) and tranche 2, all available in US dollar, euro, sterling and yen
Administrator: State Street (Guernsey)
Auditor: KPMG
Custodian: BNP Paribas Trust Company (Guernsey)
Prime broker: Barclays Capital Securities
Legal counsel: Mourant Ozannes (Guernsey); Linklaters (UK)
Domicile: Guernsey
Listing: Irish Stock Exchange and Channel Islands Stock Exchange
Management fee: 1.5% a year
Performance fee: tranche 1, 20% return in excess of Libor, net of other fees and charges; tranche 2, 20% return, net of other fees and charges with no hurdle rate
Minimum investment: $10 million, £5 million, €6.5 million, ¥1 billion (tranche 1); $500,000, £250,000, €325,000, ¥50 million (tranche 2)
Lock-in: None
Redemption/liquidity terms: monthly with one month’s notice; tranche 2 shares have a 2% exit fee applying in the first six months