Stenham Gold: Stenham Asset Management

Shortlist: Best performing specialist fund of hedge funds over three years

The Stenham Gold fund was launched in 2003 as a response to the then widening discrepancy between the prices of bullion and underlying gold equities. The aim of the fund of hedge funds (FoHF) was to exploit this spread, where traditionally for every $1 rise in the price of bullion there would be a $2 rise in the equity. The initial structure was 60% equities and 40% bullion.
 
Today the fund has rebalanced slightly in favour of bullion, with the split being in the region of 55% bullion and between 35% and 40% in equities.

Performance has been strong throughout the fund’s life. The key, according to fund manager Jaspal Phull, has been the ability to switch the emphasis between bullion and equities according to the broader market conditions.

“In 2008 there was the mass sell of equities, and the average portfolio lost something in the region of 70% to 80%. This fund’s equity loss amounted to something between 30% and 50% and the bullion proportion did quite well, up in the region of 2%,” he says.

But Phull points out that care needs to be taken over when to change the equities/ bullion bias. “The ratio of equity to bullion uplift used to be 2:1 but now it is in the region of 1.5:1, and even if the equity markets do rally, gold equities always get hit very hard when the market is selling off equities,” he says.

The fund maintains a very concentrated portfolio with just a few underlying funds and this, according to Phull, is due to the fact that the investment universe is small. “We have tended towards long-term relationships with managers that we know and trust. It is all about comfort levels,” he says.

Investors in the fund have so far been on the private client side. “For high net worth individuals, gold has a good and stable position as a safe haven,” says Phull.

He thinks the underlying investor demand for gold is still relatively small and is unlikely to grow significantly, but believes it has a role to play in any investment portfolio as gold is partly cyclical and can sometimes give a significant uplift. However, he admits the macro environment needs to be significantly changed before the next uplift will come. “Gold is a non-yielding asset but it is still a fundamentally sound investment proposition,” he says.

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Fund facts
Name of fund: Stenham Gold
Management company: Stenham Asset Management
Portfolio manager: Jaspal Phull
Contact details: 180 Great Portland Street, London W1W 5QZ
Assets under management: $112 million (fund); $158 million (strategy)
Launched: September 2003
Strategies covered: gold 67%; bullion 19%; long/short 13%; long only; 1% cash
Number of underlying managers: 7
Net cumulative performance since inception: 14.58% (at September 2011)
Annualised return: 14.08% (at September 2011)
Annualised volatility: 22%
Sharpe ratio: 0.64
Administrator: Northern Trust (Guernsey)
Custodian: Northern Trust (Guernsey)
Auditor: Ernst & Young
Share classes: US dollar
Domicile: Guernsey
Management fee: 1.5% a year
Liquidity: monthly with 33 days’ notice