LIC offers SMSFs global market-neutral play

Watermark Funds Management has launched its new listed investment company (LIC), the Watermark Global Leaders Fund, the first locally managed global market-neutral fund in Australia.

The fund opened to retail investors on 4 November and aims to provide them with access to an actively managed portfolio of global equities in a market-neutral structure.

The market-neutral structure uses long and short positions to deliver consistent, positive returns of 10 per cent or more through market cycles, with no correlation to the share market.

Watermark is seeking to raise up to $110 million under the offer from retail investors in Australia and New Zealand, with the ability to accept up to $150 million, including oversubscriptions.

The LIC addresses many concerns and risks for SMSF investors, Watermark founder and chief investment officer Justin Braitling said.

“SMSFs are trying to reduce their risk, which is why they’re holding so much cash. They really don’t want to take on any risks, but they actually do have a lot of risk in their portfolio in the other 70 per cent that’s not in cash,” Braitling told a media briefing last week.

“So there are very few ways of avoiding these risks that are building in the different asset markets, other than to hold cash or to hedge.

“And that’s what we’re offering here. We’re offering a fully hedged, fully protected fund that will actually do well in a falling market and that’s the history of our fund.

“Our funds actually have a negative correlation with the different asset classes, that’s why if [Donald] Trump wins [the United States election], there’s a good chance our fund will actually be up, which is incredibly rare, and you’d struggle to find another fund, I think, that has a negative correlation to asset markets, so that’s incredibly valuable in portfolio construction for SMSFs.”

He said by including a strategy that was negatively correlated, risk in the broader portfolio was actively reduced.

“It’s a very good way for SMSFs to reduce their risk,” he noted.

“The risks are significant so they have to look at ways of protecting themselves from these sorts of [developments].

“There’s a lot of noise around these strategies being complex, but they actually are very simple – the only other thing we’re doing differently is constructing another portfolio of shorts.

“The process we use in constructing a shorts portfolio is exactly the same as the process we employ in constructing the longs, except everything is in reverse.”

The offer period is open until 9 December.

The LIC is expected to list on the Australian Securities Exchange on 21 December.

Watermark chief operating officer Tim Bolger revealed a high proportion of the manager’s 13,000 investors were self-directed retirees.

“These are people who are hungry for information,” Bolger said.

“We nurture a very strong, close relationship with our share register, and we go around the country a couple of times a year and allocate three to four hours to answer every single question that these people have on whatever topic they have questions about to make sure they feel actively engaged [with us] and feel that they have access to the people who run their money.

“Because ultimately they chose an SMSF because they want to do it themselves and do that research themselves, so one of the reasons we trade very well is because we take the time to nurture that register and obviously it also helps that our performance is good.”

Watermark’s corporate adviser is Seed Partnerships.

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