Opportunity
The fund is designed for accredited investors looking to truly diversify their portfolio by minimizing the risk associated with directional moves in the equity markets while earning a modest yield. Norrep Market Neutral Income Fund is a balanced portfolio of long and short equity positions that aims to offer investors absolute returns uncorrelated with the Canadian equity market. In fact, the fund is designed to deliver positive returns in both up and down markets. Demand for absolute return products in Canada is approaching levels seen in other advanced economies.
Strategy
The portfolio managers strive to maximize accredited investors’ total return with a combination of absolute return (i.e. not relative to an index) and yield. The market neutral strategy involves investing the full portfolio in the portfolio managers' best ideas ("longs") while simultaneously establishing short positions in the portfolio managers' least favourite ideas ("shorts").
Effectively, the long and short positions offset each other in terms of market risk and render the portfolio market neutral in terms of being uncorrelated to the market's direction. What remains is profit potential from two sources: a) share price appreciation in the portfolio managers' best ideas, and b) share price declines in their least favourite ideas.
Given that the longs and shorts offset each other from a risk perspective, the surplus capital is invested in a corporate fixed income portfolio to earn investors a quarterly yield payout in excess of the five-year government bond rate. The fund's fixed income component offers a reliable cash flow stream plus the security of the return of capital at bond maturity.
The market neutral strategy tends to outperform the equity market when the market is flat or down. The strategy tends to underperform the equity market when the market is strongly up, although still generally providing a positive return as the product's return is derived from the difference in performance between the longs and the shorts. As such, it acts as a true diversification tool throughout the market cycle.
The Norrep advantage
Niche expertise: Hesperian’s investment management group excels at identifying undervalued securities with significant growth potential and a clean balance sheet. Our track record has shown that favourable investment outcomes can be achieved through our proven and repeatable investment methodology. We make active management count where it matters.
Independent insight: Our investment management group has a deep roster of experienced professionals that allows the portfolio managers to objectively view an investment's merits in making informed decisions. We choose to know a lot about certain market niches rather than a little about everything.
Innovative diversification: For accredited investors, we offer niche products that allow for true portfolio diversification. Our suite of investment tools allows the portfolio manager to effectively manage risk in all environments.