Best Ucits compliant Hedge Fund: shortlisted

Mark Lyttleton was launch manager of the BlackRock UK Absolute Alpha Fund in April 2005, having paper traded the portfolio for two years. At the time the fund was part of the Merrill Lynch Investment Management stable of funds, prior to that group's merger with BlackRock in 2006. He was joined on the fund by Nick Osborne in January 2008.

The fund is not managed against any UK equity index. The primary source of performance is the stock-picking skill of the managers, rather than relying on the volatile short- term performance of the broader stock market.

"In 2005 Mark Lyttelton felt he could use the powers available under Ucits III to go short effectively and so we launched the UK Absolute Alpha as a mutual fund using a low beta, high alpha, long/short strategy," says Doug Shaw, managing director BlackRock Proprietary Alpha Strategies.

"Many good managers make money from long only funds. It is a lot harder to make money in long/short funds," adds Shaw.

Other than their skills as stock pickers, where Lyttelton and Osborne have an advantage is in the flexibility of the fund, heads.

"In order to achieve the investment objective the managers can invest in a variety of investment strategies and instruments. This includes investing in derivatives providing both long and synthetic short positions, in the main through the use of contracts for difference.

"We gave the fund many degrees of freedom as we felt that would give us more chances to do a good job for our clients, both in making money and when necessary, defending capital," Shaw says.

The fund's portfolio consists of equities and equity-related securities  including derivatives of companies incorporated or listed in the UK, holding cash and near cash as felt necessary.

The investment universe is all constituents of the FTSE All-Share Index including AIM. The fund can also invest in other transferable securities, permitted money market instruments, permitted deposits and units in collective investment schemes.

"The BlackRock UK Absolute Alpha Fund has been awarded S&P Fund Management Rating AA, the only absolute return equity fund to be rated by S&P as such," Shaw adds.

Fund facts: BlackRock UK Absolute Alpha Fund

Full name of fund: BlackRock UK Absolute Alpha Fund
Name of portfolio managers: Mark Lyttleton and Nick Osborne
Name of investment/management company: BlackRock
Contact information: Claudia Ripley, 33 King William Street, London, EC4R 9AS (+44 (0)20 7743 5694; www.blackrock.com)
Launch date: April 29, 2005
Assets under management: £2 billion (at April 30, 2010)
Net asset value: £141.94 (A share class at April 30, 2010)
Net cumulative performance since inception: 48.89% (A share class, at April 30, 2010)
Annualised return: 8.28%
Annualised volatility: 4.5%
Sharpe ratio: 0.93 (SI)
Strategy: equity long/short
Share class: sterling
Administrator: N/A
Auditor: Ernst & Young
Custodian: BNY Mellon
Prime broker: Deutsche Bank
Domicile: UK
Management fee: 1.5%
Performance fee: 20% over three-month Libor and high watermark
Minimum investment: £500 (P share class)
Redemption/liquidity terms: daily