The Ellerston Australian Market Neutral Fund is an absolute return strategy that aims to generate positive returns in all market environments, with lower volatility than traditional equity markets.

The Fund identifies pairs of securities that have exhibited a historical long term relationship and that have become temporarily dislocated, causing a relative mis-pricing. The fund buys one and short-sells the other, creating a market neutral position that will become profitable when the long-term relationship between the two securities reasserts itself.

The fund operates only in the Australian and New Zealand equity markets because they possess idiosyncratic and structural features that lend themselves to this strategy.

The strategy is generally expected to perform best when markets display average or high levels of volatility, which are necessary for the dislocations to appear in the first place. Likewise the fund will display lower (but not necessarily negative) performance numbers in low volatility environments.

The Ellerston Australian Market Neutral fund has been included in the portfolio to provide diversification bonds and equities, in part due to the low expected returns currently displayed by traditional asset classes. The fund also has lower downside risk than other, more growth-oriented, alternative strategies.