MLIM unveils new equity fund for pension funds

UK - Merrill Lynch Investment Managers has followed the launch of a "portable alpha" solution with a new UK equity fund aimed at pension funds and charities which looks to "maximise total returns".

MLIM said the new Merrill Lynch Institutional Trust (MLIT) UK Focus Fund is targeted at pension funds and charities.

"In an increasingly liability (bond) focused world, pension clients have begun asking what role equities should play," MLIM said in a release.

"As an alpha (performance) seeking asset class the role of equities has not in fact changed. However, over the last few years, with equity markets falling, pension schemes have come to understand that the level of performance that can be attained via equities is at a price: 'risk'."

The real risk lies in being invested in equities in the first place. Once the decision is made to invest in equities it is a fallacy to assume that investing in passive equity funds is materially less risky than investing in active equity funds."

The new fund will invest "solely in stocks that the fund manager has high conviction will perform and which takes no account of index weightings". It will typically invest in 15-20 stocks to maximise total return. Fees will be a combination of base and performance fee.

"Historically clients have measured performance and risk vs a generic index," said Charles Prideaux, MLIM's head of equity products. "This meant that an active manager was not in a position to deviate significantly from the index weightings in order to restrict volatility of returns relative to the benchmark.

"However, with clients moving to liability specific benchmarks and using total risk budgets to determine risk allocations, equities can now take their proper role as an alpha generating asset class."

Last week MLIM launched a so-called "portable alpha" solution called Liabilityplus, offered via a Jersey-based pooled umbrella vehicle.

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