Shortlist: Best Ucits product

Proprietary optimisation and risk management techniques deliver consistent absolute returns at the MLIS Marshall Wace TOPS Ucits Fund (Market Neutral). The idea is to get better analysis than other funds by working to capture the alpha resident within investment banks, research boutiques and local brokers worldwide.

The fund aims to generate an annualised return (after payment of fees and expenses) of 8%-10% with a low volatility target of 3%-5%.

The expertise, information and analytical edge present in the sell-side community is rarely measured and presents an opportunity. The fund's assets are used to trade the high-conviction equity investment ideas from a broad range of over 1,400 individuals, including contributing salespeople, strategists and economists (in about 40 countries) selected by algorithmic models developed by Marshall Wace.

Unlike some other market-neutral funds that analyse passive data, the dynamic input from the sell-side community means that the fund can offer a more positive approach that seeks to deliver a process that is independent and generated both long and short alpha.

The resultant strategy is highly diversified and liquid. It seeks to offer exceptional risk characteristics such as low downside deviation, limited use of leverage and minimal bias to any theme, style or factor.

Diversification means no more than 12.5% of net asset value (NAV) is invested in a single country or sector and small cap exposure is limited to 20%. No more than 3% can be invested in a single stock and net market exposure is plus or minus 15 %. There are between 1,500 to 2,000 holdings at any one time, 98% of which could be liquidated in a single day.

The fund also aims to be uncorrelated to market direction instead offering pure alpha and low volatility.

The outlook for the TOPS strategy is positive as conditions for liquid, diversified equity trading strategies have improved notably since the second and third quarters of 2010.

Marshall Wace’s proprietary Alpha Regime Indicator, which seeks to assess the risk environment in which the fund operates (on a scale of one to five where one is relatively benign conditions and  five relatively hazardous), oscillated between level two and three during the first quarter of 2011 and is now between one and two, indicating more stable conditions for the fund and an improved opportunity for alpha generation.

The fund has also worked to reduce its trading costs by enhancing its proprietary global algorithmic trading platform. This, along with better liquidity in the broader market through corporate data and equity market flows, means the fund is poised for further success.

Alan Clake, who has been responsible for the TOPS strategies since their inception in 2001, and Alan Hofmeyr, who was previously head of the quantitative portfolio advisory team at Lehman Brothers, manage the fund.

Fund facts
Full name of fund: Merrill Lynch Investment Solutions - Marshall Wace TOPS Ucits Fund (Market Neutral)
Name of portfolio managers: Anthony Clake and Alan Hofmeyr
Name of investment/management company: Marshall Wace
Contact information: Birgit Sammer, Merrill Lynch, 2 King Edward Street, EC1A 1HQ (+44 (0)20 7995 5419; birgit.sammer@baml.com)
Launch date: November 23, 2007
Assets under management: $141.1 million (April 28, 2011)
Net cumulative performance since inception: 4.42% (28 December 28, 2007 to March 31, 2011)
Annualised return: 1.31%
Annualised volatility: 5.51%
Sharpe ratio: -0.1
Strategy: market neutral
Share classes: A, B, D (institutional)
Administrator: Société Générale Securities Services
Auditor: PricewaterhouseCoopers
Custodian: Société Générale Bank and Trust and Merrill Lynch International
Legal counsel: Linklaters
Domicile: Luxembourg
Management fee: 1.75% (A, D, B);
Performance fee: 25% of outperformance above Eonia (A, D); 15% of outperformance above the high water mark (B)
Minimum investment: €/£/$1 million (A, B, D);
Lock-in: none
Redemption/liquidity terms: weekly, T-3 notice