ARGONAUT ABSOLUTE RETURN: Fund finds golden fleece

Few mutual funds replicate what Argonaut Absolute Return does, which is to make money in a variety of stock market conditions.

It does this by shorting specific stocks – essentially betting on them falling in value and making a return when they do. In addition, it also invests in companies that it believes the share price will rise.

The results of this long-short strategy are impressive. In each of the past four calendar years, it has posted double-digit returns, ranging from 16.6 percent in 2020 to 10.3 percent in 2021.

Over the past five years, it has generated a total return of 44.4 percent, surpassing both the FTSE All-Share Index (15.9 percent) and its target absolute return peer group of 8 percent.

The £104 million fund is all about the investment brains of Barry Norris, a longtime manager who had spells at Baillie Gifford and Neptune (now absorbed into Liontrust) before founding investment house Argonaut 18 years ago.

The company manages just £150 million – it’s a streamlined business with just six employees (including Norris). Argonaut Absolute Return is the flagship fund. Norris is a sincere investment expert who likes to feather – and say things others would never say. This is because he doesn’t rely on the growth of the stock markets to generate returns for investors, so he doesn’t have to keep talking up the market.

His modus operandi is to scour global markets for stocks that he believes can generate returns for the fund – either because he believes their prices will fall or they will rise in the near future.

Currently, the fund has more short positions (71) than long positions (43). This reflects Norris’ view that the United States and the UK are both heading for a recession as interest rates continue to rise and credit crunches threaten.

He also believes that the high nominal interest rates available to savers make investing in stocks less attractive.

“For the past 15 years, cash has been garbage,” says Norris. “But now that five percent interest is available from savings, many people wonder whether it is wise to risk their capital on the stock market.”

This year, Norris made money for investors by shorting shares in US regional banks Silicon Valley, Signature and First Republic before they went bankrupt. He also shorted shares in Swiss bank Credit Suisse before it was bailed out by rival UBS. Norris says the positions produced an eight percent return for the fund.

Norris thinks other regional banks in the US are likely to struggle in the coming months as savers leave in search of better deposit rates and banks struggle to fund enough cash to pay them off. The fund currently has eight short positions in US regional banks, but Norris declined to disclose their names.

The fund’s long positions include holdings in Microsoft and Norwegian fishing companies Mowi and Salmar.

Norris says investors should only dedicate a portion of their total portfolio to his fund. He adds: “What it offers is a return when conventional funds can’t get it because of falling share prices. We’re doing something that delivers uncorrelated returns and there’s increasing demand for it.”

Last year, the total annual expenses amounted to 0.81 percent. The fund can be purchased through leading investment platforms, although it does not appear on any of their best-buy lists. The scholarship identifier is B79NKWO.