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Alternative Market Briefing

Long/short hedge fund: "the 1970s here again for investors"

Thursday, September 08, 2022

amb
Wilton Fry
B. G., Opalesque Geneva for New Managers:

With a return of 25% YTD, combining fundamental stock picking with modern quantitative investment analysis is working very well for this new manager, who also happens to give a share of their profits to wildlife conservation charities. And they are now readying for future major structural changes in the world.

Cambridge, UK-based Iguana Investments was founded in 2019 by Chris Reid and Fahd Ahmed, who both previously worked at Majedie Asset Management in London (Majedie was acquired by Liontrust earlier this year).

The fund in question is the Irish-domiciled Iguana Investments Long/Short Equity Fund, which is accessible via Caymans and UCITS vehicles and manages £44m (US$50.3m) in AuM.

As of the end of August, the UCITS was up 18% since its April 2021 inception compared to almost 11% for the MSCI World Index, and up 24% YTD after gaining 6% in August. The Caymans fund returned 8% from its December 2020 inception to July 2022. The HFRI Equity Hedge (Total) Index is down 9.8% YTD through July.

"So far in 2022 (as of 6th Sept.), the Iguana fund is up around 25% having been cautiously managed with average gross levels of 150% and a typical net of +10%," Iguana's CFO Wilton Fry tells Opalesque. "These returns were distributed approximately 50:50 on both the long and short side, with gains from longs in aerospace and defence, utilities and materials and gains from shorts across Industrials, Consumer Durables, and the so-called Consumer Technology stocks.

"While returns came mostly from stock picking, in retrospect, we had correctly anticipated the rise in interest rates but on the other hand, as a fund based in Europe, the tragic Ukraine war was initially a challenge to navigate making agility important."

The Iguana fund runs a daily dealing, low net strategy focused on finding investments where the business is undergoing a step change in its potential, using a combination of traditional fundamental and contemporary quantitative analysis.

It invests in global developed market equities (typically 30% UK, 40% US, and 30% Europe and Nordics) and is sector-agnostic. It typically holds about 25-35 longs for up to two years and 30-60 shorts for somewhat shorter periods.

Looking ahead: anything can happen

The manager expects further momentous structural changes ahead, and the UK to be at the frontline of these changes. Their strategy going forward is planning, long-term picks, and a tactical stance.

"Looking ahead, we continue to search for businesses that are improving globally," Wilton Fry continues, "but we are faithful to our strong view that there are fundamental structural changes being driven by the reverse in globalisation that will result in consequences such as structurally high inflation, and thus new sectors such as staples and materials potentially leading the market.

"Given our experience and background, the UK stock market is a big focus for us. In a sense, it is very exciting because the UK is arguably mostly influenced by global trends and so is likely to be at the vanguard of how to adapt to these changes. This gives rich opportunity both long and short because many UK companies have proved they can cope with big changes while some others are proving slow to adapt.

"While we think the 1970s is here again for investors and we have a plan and some long-term picks that will do well in this environment, we will also remain tactical and take anything going, because anything can happen, so hard work, good ideas, and a committed team are our secret weapons to keep the returns profile coming."

For the wildlife

The manager is also actively committed to the principles of social responsibility, as indeed 10% of the net company profits are donated to wildlife conservation.

Furthermore, the UCITS is classified an Article 8 Fund under the EU's SFDR, and Iguana Investments is committed to ESG issues in line with the UN Principles for Responsible Investment (UNPRI or PRI). This may be traced back to the manager of the fund, Chris Reid, who studied Natural Sciences at Cambridge before taking up finance.

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