Optimal manages equity long/ short funds and equity hedged funds. Currently, three of the funds focus on Japan with a fourth investing across the Asia Pacific region excluding Japan.
Equity long / short
These funds can short both stocks and market indices, which could result in a "net short" market position. They can also be leveraged up to twice the value of shareholders' equity. The
Optimal Japan Fund is USD denominated. The
Optimal Japan Trust is Australian dollar denominated.
In December 2004, based on our expertise and philosophy of absolute returns which have been proven in the Japanese market, we launched the
Optimal Asia Fund which invests in Asia-Pacific (ex Japan). In December 2007, we established the
Optimal Asia Pacific Fund which invests across all markets in the Asia Pacific region.
Equity hedged
The approach is to use cash to hedge the portfolio, but not to short stocks. In raising cash levels, the manager may sell stock index futures by way of preliminary implementation but will usually hold just cash and/or equities. These funds generally run a higher market exposure and may not be "net short." The
Optimal Japan Absolute Long Fund is US Dollar denominated but the assets are always held in Japanese Yen.
Risk controls
The following features assist in limiting risk:
- Concentration - avoid excessive concentration in any one position;
- Stop loss - if a loss position reaches 40 basis points of
NAV, the position is covered. All positions are closely monitored to limit losses (especially where there can be "falling in hate" syndrome with short positions);
- Liquidity - ensure the fund has sufficient liquidity to meet withdrawals. Depending on short selling restrictions in certain markets, synthetic instruments and
index futures will be used where necessary;
- Currency - is managed to ensure stock selection
generates the return;
- Long / short mismatch - monitor unwanted mismatch between long and short.
Restrictions
The following restrictions shall apply in managing the assets of each of the funds:
- securities acquired by the funds will be listed on an established stock exchange or dealt in on an established over-the-counter market;
- not more than 10 per cent of the funds' gross assets may be invested in the securities of any one company;
- the funds will not hold more than 10 per cent of any class of security issued by a single issuer or take legal
or management control of any investee company;
- the funds will not invest in real property or physical commodities.
Fees
The Optimal Japan Absolute Long fund currently levies a one per cent p.a. management fee. There is also an annual performance fee which is based on the investor's return exceeding the return of the Topix index or zero - whichever is the higher. No performance fee is paid unless the investment return has exceeded the higher of these two hurdles at the financial period end or at time of redemption.
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