Rated Fund 2016-2017. Benefiting from falling as well as rising share prices
Old Mutual UK Dynamic Equity was highly commended in Money Observer's 2016 fund awards. Managed by Luke Kerr since 2009, it targets capital growth through investment in small and medium-sized UK companies.
Kerr is part of Old Mutual's UK mid and small-cap team so he is able to benefit from their best ideas. He looks for strong, fast-growing companies whose shares he expects to rise in price but he can also 'short' stocks he believes are going down in price. This gives the fund an advantage in volatile market conditions.
Kerr says the difference between his fund and traditional funds is that while others are typically 90-100 per cent invested in shares, he can have as little as 60 per cent invested, with the remainder in cash.
He can then use up to 30 per cent of the fund to take short positions in stocks that he thinks will go down in price and thereby provide him with a positive return. This means that the fund can be anywhere between 30 and 100 per cent exposed to equities.
So if he believes the equity markets are going up, the fund will behave much like a traditional fund and have little or nothing in short positions.
However, if he believes the market is falling he can reduce his holdings to 60 per cent, take the short book up to 30 per cent and thereby significantly increase the fund's potential to benefit from falling share prices.