Shortlist: Best non-directional hedge fund over three years

Essentially, the G7 Fixed Income Fund run by Aviva Investors has a style characterised as protective by its portfolio manager Shahid Ikram, who has been with Aviva Investors for over 20 years.

The fund aims for absolute returns throughout the cycle but at the same time the team does not sacrifice low volatility, according to Ikram. The team takes a disciplined approach to building target return through a series of individual targets for each trade and an unemotional use of stop-losses. Taking profits is key, admits Ikram.

The fund aims to generate positive returns by correctly anticipating the general direction of markets and by identifying relative value opportunities in individual securities. The fund’s strategy is to run five to six low-correlated themes across a number of positions. Within each theme the results should create a well-diversified portfolio with low volatility. The team believes a major strength of this kind of strategy is that returns are not reliant on just one sector or one source of outperformance.

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

The fund may also exploit opportunities in equities and commodities using derivatives to express views on the interactions between these asset classes and fixed income markets.

Portfolio construction begins with a cash portfolio earning a return close to Libor. Each position added to the portfolio is put on in a hedged package so that little additional hedging is required at the portfolio level.

The core focus for the fund is to exploit arbitrage opportunities in cross-market trading, duration trading, yield curve positioning and individual stock selection. The fund does not normally have a material long or short bias. If macro positioning is undertaken, it is conducted via options with a predetermined maximum downside.

Geographically, the fund will normally allocate 70% of its risk to the UK and European markets although this is not a hard and fast rule. The remainder is allocated to other regions depending on profit opportunities.

The fund is structured to be able to be liquidated within three business days under normal market conditions, without affecting market prices.

The fund has generated annualised returns of 10.96% since inception in February 2003 (at March 31, 2011) while producing annualised monthly volatility of returns of 2.6% over the same period. Even during the volatile environment of 2008, the fund returned a positive 16.2%, one of its best years since launch.

Aviva wholly owns Aviva Investors.

Fund facts
Full name of fund: G7 Fixed Income 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 (+44 (0)20 7809 6411; raphaelle.moysan@avivainvestors.com; www.avivainvestors.co.uk)
Launch date: February 3, 2003
Assets under management: £491.9 million (at March 31, 2011)
Net cumulative performance since inception: 234.8% (at March 31, 2011)
Annualised return: 10.96% (at March 31, 2011)
Annualised volatility: 2.63% (at March 31, 2011)
Sharpe ratio: 2.79
Strategy: sovereign relative value
Share classes: tranche 1 (founder investors only) 2 and 3 available in US dollar, euro, yen, sterling
Administrator: State Street (Guernsey)
Auditor: KPMG
Custodian BNP Paribas Trust Company (Guernsey)
Prime broker: Barclays Capital Securities and Merrill Lynch International
Legal counsel: Guernsey: Mourant Ozannes (Guernsey); Linklaters (UK); Linklaters (US)
Domicile: Guernsey
Listing: Irish Stock Exchange and Channel Islands Stock Exchange
Management fee: 1.0% a year (tranche 1 and 2 shares); 1.75% a year (tranche 3 shares)
Performance fee: 20% return in excess of one month Libor, net of other fees and charges
Minimum investment: £150,000; €200,000; $200,000; ¥30 million; dependent on the investment tranche
Lock-in: there is a minimum holding period of six months for tranche 1 and 3 shares; there is no minimum holding period for tranche 2 shares
Redemption/liquidity terms: redemption frequency is monthly; redemption notice period varies: one month (tranches 1 and 3);  three months (tranche 2); redemption fee: none (tranche 1 and 3);  2.5% exit fee for first 12 months (tranche 2)