Video: Threadneedle UK Absolute Alpha: should you invest? The fund is three years old and is a top performer over that period, ranking 12 out of 53 funds in its sector. But it comes with a hefty performance fee of 20pc on returns above the three-month "Libor" wholesale interest rate - currently just 0.5pc - as well as an ongoing charge of 1.65pc. Mr Westwood said it was a "standard fee structure" that was justified by the fund's performance. "You are paying for the expertise of Threadneedle's stockpicking team," he said. The fund has a domestic bias, arguably making it more exposed to UK markets and therefore more vulnerable to sudden falls. Mr Westwood said if the markets fell, the managers would reduce their exposure to safeguard investors" money. "We can fluctuate our exposure as and when we see the opportunities," he said. As quantitative easing is tapered next year, that could mean the market could have a fall and at that point we would look to reduce the exposure. We can't guarantee we won't lose people money but it's another tool in our bag. Mr Westwood said the UK market was still "reasonably good value," particularly compared with the alternatives of cash and government bonds. The managers have taken 50 long positions and around 25 short positions in the fund. The long positions include banks and miners. Miner Rio Tinto, HSBC and Legal & General are among the top five holdings. What are the alternatives? Ben Willis of advisers Whitechurch Securities rates the Threadneedle UK Absolute Alpha fund as a "hold" for investors. He said co-managers Chris Kinder and Mark Westwood had delivered "admirable performance" since the fund's launch in October 2010, but investors should be aware that this fund could be more volatile than others in the absolute return sector. "It invests at least two thirds of its portfolio in UK stocks," he said. As such, the fund may be more correlated to the broader UK market. He said the 20pc performance fee was another "negative." "Because of this it is not a buy in my book," he said, "but because the managers have delivered for existing investors, it is a hold." Mr Willis selected the Jupiter Absolute Return fund as an alternative, despite poor returns in recent years, because it has a new manager in James Clunie. "Ignore this fund's past performance," said Mr Willis. The investment philosophy of the fund will change drastically following Clunie's arrival. This fund also has no performance fee. Mr Willis also liked the £361m Cazenove UK Absolute Target fund. "Steve Cordell took over as lead manager in 2011 and has managed to alter the fund's fortunes," he said. The fund aims to generate an 8pc-10pc annual return over five years after fees, including a 20pc performance fee.