In essence, the fund is as capable of generating returns when the FTSE 100 TR Index is falling as it is when it’s rising. That should result in better and more dependable returns than most FTSE Trackers and Absolute Return funds provide and a smoother pattern of returns for investors. It also relieves investors and their advisers of the requirement to take a view on the direction of the Index.
Active risk managementThe fund applies a range of risk controls similar to those of structured products. Firstly, the fund’s exposure to the underlying assets is adjusted according to market conditions and secondly it utilises asset allocation techniques which are designed to prevent erosion of capital.
Reactive trackingMost conventional Index trackers are not designed to reduce or increase their exposure to the Index based on its volatility: The fund’s returns simply move up and down in line with the Index. The Barclays FTSE 100 Trend Fund takes a more reactive approach. When the Index is relatively stable, exposure to the Index is increased: In uncertain conditions, or in periods of higher volatility, exposure is decreased and some — or all — of the fund’s assets are sold and invested in cash. (Exposure levels are re-assessed twice a week and if no adjustments are required, no adjustments are made.)
Measuring the riskThe up and down movements in the Index are measured and averaged over rolling 20-day periods, which represent the fund’s ‘absolute daily return’. The greater the degree of fluctuation, the more volatile the Index is deemed to be (and vice versa) and the allocation of the fund’s assets is adjusted accordingly...