Fidelity International’s collection of funds known as its FAST range, which started back in 2004, make use of freedoms to use derivatives and other market instruments that let managers take short, as well as long, positions in stocks. They can also be used to enhance returns and contain downside risk.

Despite recent market turmoil, this investment approach appears to be paying off over the long term. One of the funds, FAST Europe, an equities portfolio, has achieved annualised returns since launch in October 2004 of 9.65 per cent, easily beating a -0.98 per cent result for the MSCI Europe index over the same period, Fidelity International says.

Such performance is worth remembering since hedge funds - which famously are supposed to make money in all market conditions - hit a brickwall last year, suffering a record loss of about 19 per cent, although the sector has recovered some of its vigour in 2009.

UCITS vehicles, by offering daily liquidity, transparency and regulatory oversight, are an attractive option for investors not quite ready to go the full distance and take up hedge funds. And Fidelity International is certainly not alone in embracing UCITS structures: other firms such as Fleming Family & Partners Capital Management, Gartmore, F&C Asset Management and Bordier Gestion Privée have used UCITS funds to increase their range of investment instruments.

“We wanted to design more innovative ,” he said. “If things turn up again, we will likely identify more buy ideas and so our net exposure may rise as a result,” he said.

So what are the benefits of the FAST funds? Mr Homan replies that they have the following advantages as he sees them: They exploit the depth and variety of Fidelity’s research; if any exposure is reduced by a short position, it can be balanced by an additional long exposure, via a derivative. Also, portfolios can be insured through the purchase of index put options and yields can be enhanced through selling call options against stocks in the portfolio.

There are a number of funds in the FAST stable: FAST Europe, FAST Japan and the FAST Optimised European Market Neutral Fund. The latter fund now has $1.1 billion of assets.

Capacity is an issue, he said, as each fund will be capped at about $2 billion of assets to protect performance. The FAST funds are designed for the higher net worth category of investor, from private banks, family offices, etc…through to institutional investors such as pension funds.

Take-up of these funds was not quick at first when they were rolled out five years ago and only really accelerated when they achieved UCITS status. This is because this status gave them the ability to raise assets through public offering of a registered vehicle rather than private placement, and because they have the advantage of greater transparency and daily liquidity.

UCITS funds can have their drawbacks - such funds can be sometimes expensive to establish - but as Fidelity International and other firms are discovering, this business model is winning friends in what is still an uncertain economic environment.