Bestinvest says
Luke Kerr has run this fund and a hedge fund with a similar mandate since 2005 and has outperformed the FTSE 250 benchmark on both. The funds have also provided defensive characteristics in falling markets, aided by their ability to short. However, this is not an absolute return fund and volatility is likely to be broadly similar to equity markets as a whole. Kerr has also achieved extremely strong performance on an offshore smaller companies fund. He benefits from the support of Old Mutual’s UK Small and Mid Cap team, overseen by Dan Nickols.
The fund’s investment universe is medium and small cap UK equities, defined as those outside the FTSE 100. The fund targets strong returns in up markets whilst providing significant protection in down markets. The bulk of the portfolio will be in traditional “long” positions (buying equities the manager expects to rise in price). However, the manager will also take short positions, which give negative exposure to shares he believes are overvalued, enabling him to benefit from falling share prices. With the long positions the manager looks for companies that 1) have the potential for above average growth, 2) Potential for profit upgrades and 3) Potential for re-rating. These criteria are reversed when looking for short positions, though he will also use them more generally to reduce market exposure when he believes it is overvalued. The process also includes top-down analysis, which is aimed at identifying sectors which are likely to outperform and underperform the market - this helps set the overall balance of the portfolio.