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Threadneedle UK Extended Alpha

Elite Rated by FundCalibre

This fund invests primarily in large UK companies, but with an unusual approach. As the name suggests, the manager aims to extend investors’ potential returns by buying stocks he expects to do well and also looking to make money on stocks he expects to do badly (shorting). So far this strategy has proven very successful and the fund has impressively beaten its peers and the UK stock market under the manager’s tenure. The fund has a performance fee.

Company Description

Columbia Threadneedle Investments is the global brand name of the Columbia and Threadneedle group of companies, which are owned by the US financial services firm, Ameriprise Financial. Its focus is on equities and fixed income, but the company also manages cash and property assets. It has an international presence spanning 18 countries across UK, Europe, US and Asia.

Factsheet_columbia_threadneedle_logo

Fund Manager

Chris Kinder has run this fund since it was re-launched with its current name and strategy in November 2010. He joined Threadneedle in that same year and has 15 years of investment management experience. Prior positions include assistant fund manager at RWC Partners and chartered accountant at PricewaterhouseCoopers. He has a degree in modern European languages from Durham University.

Factsheet_chris_kinder_-_threadneedle_uk_ext_alpha

As a fund manager I can control two things – the companies I buy and the prices I pay; therefore, I look for decent businesses under good management, wary of the prices I pay.

Chris Kinder - Fund Manager

The Investment Process

Chris looks for out-of- favour companies with resilient long-term business models, which he believes are ‘cheap’ considering their long-term growth prospects. He and his team must be convinced a company has a sustainable competitive advantage before they invest. They pay close attention to factors such as research and development, how easy it would be to replicate the company’s assets, and barriers to entry. The team sit with management and quiz them on how they’re spending their company’s money. Conversely, when Chris is not positive on a stock, he can take a short position, which means he can make a profit if the share price falls. In these cases, he and the team will look for companies whose shares are quite expensive, yet whose underlying fundamentals are deteriorating.

Risk

Although this fund will always be more heavily invested in the companies Chris likes—and have a much smaller amount in the stocks he dislikes and is shorting—it is important to remember that shorting does increase the risk of a fund. On the other hand, this ability to make money from falling prices, as well as the fund’s defensive nature, has helped to protect investors’ capital in flat or down markets. This fund does use financial instruments (like derivatives) to enable Chris to extend the amount of money he can invest, with the goal of increasing potential returns, which also increases risk. Under Chris’s tenure, however, the fund has been only slightly more volatile than the UK stock market.

Our Opinion

This fund offers something genuinely different to its UK equity peers with the possibility to profit from both rising and falling share prices. This increases the potential for higher returns but also the fund’s reliance on the manager’s stock picking skills. We think Chris is a very strong manager and he has a robust and sensible process. Those wanting large-cap exposure with a twist could do well to consider this fund.

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