The long/short Odey Swan fund has been one of the worst performing funds available to UK investors in 2016, doubling the loss of the worst performer in the Investment Association universe of more than 3,500 funds, according to research by FE Trustnet. 
The portfolio’s manager Crispin Odey (pictured) is one of the most notorious and respected hedge fund managers of the past few decades, especially as his strong returns in 2008 set himself apart from many of his peers. His most recent tone has been one of extreme bearishness, which he has fully expressed in his investment decisions.
As far as our data goes back for the manager, he has stayed ahead of his peer group composite until recently thanks to the weak performance of Odey Swan among others.
Performance of Odey versus peer group composite since 2003
Source: FE Analytics
However, while broader markets have seen strong falls over the past year, they generally have tentatively ticked up since their worst day in January, and are now above their level at the start of 2016.
Odey recently said: “We have been hurt by this rally in China-related companies, and indeed we reduced the gross and net positioning of the fund significantly in mid-March, to help reduce the short term volatility of the fund, but we remain convinced that China is in many ways in an even greater bind over policy than the developed world.”
“At which point this was no longer an investment market but a battlefield. On the day that Draghi came out with his massive market support operation, the stock markets rose 2.5 per cent and then closed down 1.5 per cent on their lows. Imagine how painful it was to see the markets bounce the next day and celebrate his success. At that point I reduced the short book by a third and the long book by 10 per cent,” he added.
However, Odey is still expecting deflation and says the broader equity market could be hit in similar manner to the Japanese market of 1996-1998 when the TOPIX index fell more than 60 per cent.
The €538m FCA registered offshore Odey Swan fund is down more than 30 per cent since the start of the year, while the worst performer in the IA universe the FP Argonaut Absolute Return fund has lost 15.1 per cent year to date. The Odey fund is down even more since its most recent peak on 20 January – by a whopping 40 per cent.
Performance of funds and index in 2016
Source: FE Analytics
As Adrian Lowcock, head of investing at AXA Wealth puts it: “This fund is a high conviction fund and follows manager Crispin Odey’s views of the markets. He takes punchy views of the direction of the stock market which can result in big profits but equally investors can suffer significant losses.”
“He reversed a poor 2015 in the first few weeks of 2016 as he bet the market would fall. However the fund has really suffered from the subsequent rally in stock markets. “When Odey’s positions and views do turnout correct the fund rewards investors handsomely but this performance is very lumpy with long periods of poor investment.”
The long/short fund has been headed by FE Alpha Manager Odey since it launched back in 2013. It tends to do well during periods of volatility but has been doing far worse than the broader market in the past year, in what has been a tricky 12 months for financial assets in general.
Ben Willis, head of research at Whitechurch Securities, has been a fan of the fund for several years and is ‘holding’, believing while such a fall is not pleasant the fund’s profile is a good hedge against a crash.
“We risk rate it accordingly and it only features within our higher risk portfolio strategies. Its role is to act as an insurance against our investment case being wrong. We are nowhere near as bearish as Crispin Odey on the outlook for financial markets but we recognise his expertise in interpreting the global macro environment over the longer-time frame,” he said.
“Therefore, the fund acts as a great hedge when risk aversion is rife - January this year being a great example - making money and protecting the portfolios where the equity positions are losing money. However, such gains have been given up – again, not a problem as the risk positions within the portfolios have ably counterpointed this.”
“Having said that though, even we would like to see some stricter risk controls and some temper on conviction so that when the fund is making gains, some of it can be locked in when the macro and markets are going against the fund.”
Steve Lennon – investment manager at Parmenion – is staying away, however, as he says Odey’s style is too volatile.
“Odey as a house are generally too volatile for us. When Crispin Odey gets it right, he tends to do very well. Unfortunately, the opposite is also true as demonstrated by the recent performance.”
Charles Stanley Direct’s Rob Morgan is also hesitant of the fund given the levels of volatility it has clocked up in the past three years.
“For me it is just too volatile for an absolute return-type vehicle and I prefer funds in this area that are rather more pedestrian and hopefully a bit more predictable. However, existing holders should probably hang onto it as, presumably, they agree with the largely bearish views of the manager, and thus with its current positioning provides some portfolio insurance,” Morgan said.
“It has suffered something of a perfect storm of late and to sell now would be shutting the stable door after the horse so to speak!”
The fund’s recent losses mean that since inception, Odey’s portfolio has lost 33.29 per cent since and has been extremely volatile.
Odey Swan doesn’t have a benchmark, but as a point of comparison the FTSE All Share has returned 12.91 per cent over the same period.
Performance of fund, sector and index since launch
Source: FE Analytics
Hawksmoor’s Ben Conway says his firm use the fund in several private client portfolios but he is reluctant own it in the Hawksmoor Distribution or Hawksmoor Vanbrugh fund.
“This fund is the one of the purest expressions of Crispin Odey’s views as the retail investor can buy. It’s very much a case of ‘caveat emptor’ – as long as you realise that this fund is a pure distillation of Odey’s views, which are pretty extreme at the moment, and that it can be extremely volatile as a result – then there is no reason why an investor shouldn’t continue to hold the fund.”
“Were his views to play out, I am sure this fund will make back the losses incurred in the last year and more. You have to ask yourself whether you agree with Odey – if you don’t, then you have to question why you’re holding it.”
He also says the fund is a good hedge against most risk assets falling in price and could be good for general ‘portfolio insurance’.
“It could form the part of your portfolio under ‘idiosyncratic risk’ – backing the skills of one manager rather than investing in any specific asset class. Odey has a tremendous long-term track record that commands respect.”
“He is a free-thinker and his webcasts are always worth listening to thanks to the courage he has in his convictions. We wouldn’t rule out investing but neither of our two funds of funds really have the mandate to hold such a volatile fund and in any case, we hold some of the component parts of Odey Swan in different guises already.”
However, he says due to the recent performance of the fund, now might be a good time to look at again.”
“In the background we would always be wary of the fact that the current policies deployed by central bankers are making a mockery of many superb macro fund managers given these policies involve market manipulation on a huge scale in the face of fundamentals that do not justify current valuations.”
Odey Swan has a clean OCF of 1.14 per cent.
