Watermark Market Neutral Fund Limited (WMK) is a listed investment company investing predominantly in Australian securities. The Company's portfolio is managed by Watermark Funds Management, an absolute return manager with a long
A market neutral fund allows investors to benefit from Watermark's success in identifying "strong" companies to invest in and "weaker" companies to sell short, without being fully exposed to the volatility and risks of the share market.
Generally speaking the share market is highly efficient and most companies are fairly valued. At any point in time however, there are always going to be a select group of companies that are mispriced either cheap or expensive based on our assessment of value. In a market neutral structure the manager looks to profit from the mispricing of shares by taking advantage of the natural hedge between long and short positions. The structure is very simple. The investment portfolio of shares we favour is funded from the proceeds of selling "short" the shares of companies we dislike. The "longs" and "shorts" are approximately of equal value, minimising exposure to general market movements, while our investor's capital is retained in cash earning interest (there may be a degree of net market exposure, but this will be managed so it does not exceed 10% of capital).