Winner: Best directional hedge fund over 10 years; Shortlist: Best directional hedge fund over three years

Winner 2010
Hedge fund of the decade

Futuris is run by portfolio managers Arne Vaagen, Karl-Mikael Syding and Mattias Nilsson. The three have worked together for over 11 years. They sit just a couple of metres away from each other, speak together for over 10 hours a day and pitch ideas to one another in a very informal manner, according to Syding.

This rather light-hearted approach to fund management has served Futuris well, with an impressive net cumulative performance since inception in 1999 of 539.2% and assets under management (AUM) of $1.3 billion.

According to Syding ideas in the Nordic region do not necessarily differ from ideas found elsewhere. Certain sectors are prevalent, notably banks, capital goods companies (for example, SKF or Standic) which dominate the stock universe in Sweden and shipping, shipping sub-suppliers, oil and rig operators in Norway.

Although Syding’s team mainly concentrates on the Nordic region, on occasion they make investments outside of that area. Syding explains that if the tanker-building industry beckoned, driven by oil and replacement of old tankers, Futuris would start by looking at the Nordic region. If, however, there was nothing cheap enough in that region, they would look further afield to other ship-building regions – Japan, Korea and China as well as closer to home in the Netherlands.

“When it comes to expertise on a global basis, we make sure we only invest in ideas or cases that are driven by the exact same forces as the Nordics would have been. The only thing that actually differs is the legislation regarding the stock market and not the companies themselves,” Syding explains.

Over the last three years Syding is particularly proud of some short positions he held in 2008 in Nordic retail banks with exposure to the Baltic region which went well – as well as some shorts in shipping and capital goods, he admits.

He also notes the fund’s performance in May 2010 (6.7%) despite the 'Flash Crash'. This success he attributes to beta and market directional decisions, although he plays it down, claiming he was “a bit lucky”.

In 2011 so far most of the return was made in March when the fund was up 9%. This was due to the Fukushima nuclear disaster in Japan. “All stock markets globally fell through the floor. We were a little bit short going into March because we thought there were a lot of imbalances in general in the economy and in the market – people were too bullish and there were issues with the PIGS [Portugal, Ireland, Greece and Spain] countries in Europe. There were a lot of things that could go wrong even if we hadn’t pinpointed exactly what that might be,” Syding explains.

Futuris was net short for January, February and March while waiting for one of these crises to rear its head. This patience finally paid off in March. Although Syding’s team had no way of anticipating the Japanese disaster, he believes their response to it is what makes Futuris such an effective fund. 

“We couldn’t know that there would be the earthquake of the century and a nuclear disaster on top of that. But once all of these things happened, we kept our heads cold and went seriously net long at the very bottom. Being prepared and being ready to go long when the market has overreacted to a piece of news – that is the difference between Futuris and a lot of other funds,” Syding declares.

This response entailed shifting short positions to long in certain capital goods, oil, offshore mining and bank companies. Futuris also added futures on the Eurostoxx 50 Index to its portfolio in order to keep liquidity extremely high in case the March situation worsened further.

The greatest challenge for the fund in 2010 so far was responding to the macro trends, numbers and thinking which has dominated. Syding explains how he and his colleagues “completely misread” the impact of quantitative easing part two (QE2) on markets and investors.

“We had a very tough time being short in September and October [2010] when we thought initiating QE2 would be a negative event for markets, representing a desperate act from the Fed. When we eventually caved in going long in November, then markets went down. That’s what happens when you get a completely number and macro influenced year. You can’t really invest fundamentally which is our game,” he notes regretfully.  

For the rest of 2011 Syding is optimistic markets will be under better control with more normal behaviour and valuations, despite the shadow of the PIGS and QE2 coming to an end. “I wouldn’t dare guess what will happen after that in terms of what it might mean because we got it wrong with both QE1 and QE2,” he concludes with a chuckle.

Fund facts
Full name of fund: Brummer & Partners - Futuris
Name of portfolio managers: Arne Vaagen, Karl-Mikael Syding and Mattias Nilsson
Name of investment/management company: Futuris Asset Management (part of Brummer & Brummer)
Contact information: Institutional Client Group, Norrmalmstorg 14, Stockholm SE-103 86, Sweden (+46 8 407 13 00; IR@brummer.se)
Launch date: October 14, 1999
Assets under management: $1.3 billion (December 31, 2010)
Net cumulative performance since inception: 539.2%
Annualised return: 18.0%
Annualised volatility: 14.0%
Sharpe ratio: 1.1
Strategy: equity long/short
Share classes: euro
Administrator: Citco
Auditor: KPMG
Custodian: SEB
Legal counsel: Gernandt & Danielsson
Domicile: Sweden
Management fee: 1%
Performance fee: 20% German three-month Treasury-bill with high water mark
Minimum investment: $130,000
Lock-in: none
Redemption/liquidity terms: monthly with seven banking days' notice; no sales/redemption fees