In their quarterly letter obtained Hedge Fund Alpha, the fund manager of the Lancaster Absolute Return Fund, James Hanbury, noted good yearly results. Started in 2007 by Matthew Wood, James Roycroft, and Richard Lamplough, the hedge fund was part of Odey Asset Management until 2023.
While the Q4 results were 1.4% negative, on a year-to-date basis, gains reached 12.7%. Assets under management are 337 million pounds or $463 million, and the discussed asset class is counted in pounds.
The fund's long exposure contributed 1.1% to the quarterly total with a negative alpha. But the gains were annulled by 2.5% losses by the short book, which generated positive alpha. Positions that were on the positive side during the quarter were Plus500 (LON:500), Nokia (HEL: NOKIA), ArcelorMittal (AMS: MT), and Glencore (LON:GLEN). Main detractors from portfolio performance were Ubisoft (EPA:UBI), and B&M (LON:BME).
On a yearly level, the manager pointed out 20.1% positive contribution from the long side of the portfolio. The performance shows a neutral alpha against the MSCI World GBP Index, despite delivering different results. Looking at holdings on an individual level, most of them improved on an operational level. However, these still need time to reflect on the stock value. With this in mind, Lancaster management shares optimism regarding 2026. In contrast to the solid performance of the long book, short positions underperformed. Short book lost 6.6% on a YTD level with a 10.5% alpha generation. Top long performers in 2025 included IWG, Plus500, and ArcelorMittal. Commerzbank and Deutsche Bank also contributed significant gains. Shorts that declined and brought gains included Deckers (NYSE:DECK), and Lululemon, (NASDAQ:LULU).
The letter highlighted long positions in Ubisoft and B&M alongside a short Nvidia trade.
Dominating Themes
In 2025, several events dominated the global landscape, including Liberation Day and the potential end of the Russo-Ukrainian War. The market easily absorbed the aggressive trade stance imposed by the US. China's position remained strong due to its export diversity, quality of supply chains, and political landscape.
Four years into the war in Ukraine, discussions about peace intensified. Chances for it to cease improved during 2025, and if it came through, it could mean a strong tailwind for the EU economy. Since Lancaster owns several positions in the EU economic zone, that scenario would positively reflect on its performance.
Meanwhile, in the UK, despite a disinflationary budget, there is a better outlook for inflation and interest rates.
Overlooking macro developments also came looming shadows of a potential investment bubble. AI, with the size of its infrastructure investment cycle, drew comparison to similar historical investment bubbles.
Macro Discussions 
Despite the manager describing the company’s approach as bottom-up, he mentioned the top decile valuation in the US markets. The manager explicitly noted that, given top-decile valuations, he anticipates lower future returns. That is why he has confidence in the company’s portfolio, which is not locked into a specific market but rather diversified.
Developments In The AI Sector
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