Fallen absolute return star defiant as losses mount

Fallen absolute return star defiant as losses mount


Former star absolute return fund manager David Crawford is refusing to be swayed by a punishing six months for his City Financial Absolute Equity fund that has seen the fund slump 30%.

Crawford, once Citywire AAA-rated for his performance of the fund admitted in his latest update to investors that the dive in performance had been a ‘difficult time’.

‘It has been a challenging period for the fund with the largest drawdown in its 10-and-a-half-year history,’ he said. ‘We appreciate the patience and support of all our investors during this difficult time.’

City Financial Absolute Equity has been the worst performing fund in the entire UK market in 2018, despite rallying 9% in the first three months of the year.

Crawford’s high conviction approach has been on the wrong side of market movements, with the manager characterising the portfolio, which has the facility to ‘short’ shares, or bet against them, as ‘short growth and long value’.

Among the positions to have caused the most damage was Bargain Booze owner Conviviality Retail. Crawford already held the stock when a profit warning in March sent the shares tumbling from 300p to 100p. He bought more of the shares, only for the company to collapse into administration in a matter of weeks.

A short on Wirecard (WDIG.DE) has also been punishing. Shares in the German electronics payments company have more than doubled since the turn of the year and have been a major driver of the strong performance of the Jupiter European Opportunities (JEO ) investment trust, which had a huge 16.8% of its portfolio invested in the stock at the end of July. Crawford has responded by reducing his short position.

Another short, on shares in Avexis, bit back in April when Swiss drug maker Novartis bought the gene therapy company in a £6.2 billion deal, at an 88% premium to the share price.

Crawford said in a May update to investors that he believed without the bid ‘this would have proved to have been a good short as Avexis had one drug which targeted a very small patient subset with very limited trial data’.

‘We suspect that this will prove a very bad deal for Novartis. But this is a symptom of the biotech sector where ridiculous prices are being paid for drugs.’

A long position in the shares of Faron Pharmaceutical (FARN) took a further chunk out of the fund when its shares tumbled from 725p to 104p as it announced the failure of a key drug trial.

Crawford had been confident on the trial, having met with management four times in the 18 months leading up to the results.

‘We had thought long and hard about holding the position over the trial results as we do not like binary situations but like skewed risk reward in our favour,’ Crawford said in the May update. ‘The result is very disappointing for me as a stock picker.’

Crawford’s fund is highly leveraged, with a gross exposure, adding together long and short positions, of 295% at the end of August, amplifying both gains and losses by nearly three times.

This goes some way to explaining the volatility of the fund. In the eight years since its launch in March 2008, the fund returned 248%, a record beaten by only three others in the entire UK market.

Since then it has lost 25%, dropping 11% in 2016 as a bet against precious metals miners came unstuck, and 27% so far this year.

But Crawford is sticking to his guns. ‘We believe that the tide will turn, possibly soon,’ he said in his latest update.

‘We see all the hallmarks of a tired bull market: high valuations, a narrower range of stocks leading the market upwards, strong economic growth, but now with interest rate rises and a number of worrying economic statistics/ratios.’

‘With some 50% intrinsic value downside to our short book and more than 75% intrinsic value upside in our long book, in our opinion, we feel there are significant returns possible for the fund and we maintain high conviction in our ideas.’


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