Best Managed Futures Hedge Fund: Shortlisted

The SEB Asset Selection Fund is a Ucits compliant systematic, managed futures fund seeking to profit from short-term directional bets in the financial markets. The fund takes long and short positions in all the main asset classes - equities, bonds, currencies and commodities - looking to achieve capital growth irrespective of market movements.

Devised and run by the global quant team at SEB, the fund was launched in October 2006 and uses a tactical asset allocation. SEB believes it was the first asset manager in the world to launch this kind of strategy in a Ucits III framework.

There are studies showing  asset allocation is responsible for some 80%-90% of the returns of a normal portfolio and that only 10%-20% is attributable to security selection decisions, accoding to the portfolio team. They say the fund is not trying to catch any long-term risk premiums but rather exploit some medium-term market inefficiencies which originate from emotional decision making.

While the fund is similar to strategies found among companies running managed futures  and commidity trading adviser (CTA) programs and to some extent also global macro and global tactical asset allocation funds, SEB points out that to date the fund has had a correlation of about 0.6-0.7 to the larger managed futures/CTA players.

Using an underlying base portfolio of Treasury bills to provide a risk free return, the quant team uses a systematic proprietary model designed to forecast the medium-term (1-3 months) development of some 40-50 futures instruments in the four different asset classes. While taking both long and short positions, the model has no default exposure to any of the four asset classes. The default position is in short-term government debt instruments.

The model is run and generates transactions on a daily basis and individual transactions are never overridden by manual considerations or subjective views.

Only extreme market circumstances would prompt the portfolio manager to interfere with the model. In case of interference, it would only be done to reduce risk, never to increase risk to a higher level than the model prescribes.

Only highly liquid futures contracts are traded.

As well as looking to give investors good risk adjusted returns, the fund offers daily valuation and liquidity.

In 2008 when many hedge funds declined sharply in value, SEB Asset Selection was able to deliver good positive returns, points out the company.

As the fund has been designed to achieve a low correlation to equities and bonds over time, the quant team estimates the long-term average correlations to both asset classes will be within the interval +/- 0.2. The company believes this enables the fund to be "a very interesting complement in any kind of client portfolio".

SEB suggests the fund can provide interesting characteristics which benefit different investors in different ways, citing as an example fund of hedge funds.

For investors running balanced portfolios or diversified growth portfolios, the company believes SEB Asset Selection would provide better alpha and reduced downside risk in a portfolio.

Fund facts: SEB Asset Selection Fund

Full name of fund: SEB Asset Selection Fund
Name of portfolio manager: Hans-Olov Bornemann, Jan Hillerström
Name of investment/management company: SEB
Contact information: Paula Avraamides, Sveavagen 8, Stockholm SE_106 40 Sweden (+44 (0)20 7246 4185)
Launch date: 2006
Strategy: managed futures
Assets under management: €1.43 bilion (at April 30, 2010)
Annualised return: 10.2% (at March 31, 2010)
Annualised volatility: 10.1% (daily), 8.9% (monthly) (at March 31, 2010)
Sharpe ratio: 0.72 (daily), 0.82 (monthly)
Share classes: US dollar, sterling, euro, Swiss franc, yen, Swedish krona, Norwegian kroner
Administrator: SEB
Auditor: PwC
Custodian: SEB
Futures (UK) is our clearer on the futures side.
Domicile: Luxembourg
Management fee: 1.1%
Performance fee: 20% performance fee above risk free rate of interest with highwater mark
Minimum investment: $1
Redemption/liquidity terms: daily