In aggregate, the performance of funds in the IMA Targeted Absolute Return sector has been weak.
The average fund is up just 10.7 per cent in the past three years, putting the sector among the five weakest, according to data from Financial Express. In contrast, the average fund in the IMA UK All Companies sector is up 47.5 per cent across the same period, while the average Sterling Corporate bond fund is up 20.8 per cent.
In terms of delivering absolute returns, most funds (which haven’t been closed or merged away) have hit this target. Only three are in negative territory across three years and only two funds across five years. These weaker funds span much of the absolute return universe – multi-asset, absolute return bond, long/short equity and macro funds are all represented.
However, when it comes to the best performing funds across three years, all are long/short equity funds – Odey Absolute Return, City Financial Absolute Equity and Argonaut Absolute Return lead the tables.
The Absolute Insight Credit fund is the only non-equity long/short fund to make the top 10. The Odey fund is up 83.2 per cent across three years, in line with the top, long-only smaller companies funds.
However, it is not all about performance: investors often use absolute return funds to dampen the volatility of their portfolios.
Matthew Frost, associate director at Henderson, notes: “One common denominator is that clients are looking to reduce volatility and provide diversification. Volatility of less than a half of the market is considered to be a starting point for absolute return products. The diversification of a lower beta product also appeals when constructing a client portfolio.
“The ability of a fund manager to steer their strategies through down markets without excessive monthly drawdowns is high on most clients’ lists of priorities. Track records that take into account the last global financial crisis and beyond are difficult to find in this sector and a closer look at their long-term track records by strategy in a pre-Ucits universe is key. This search has been heightened as peaks were being reached in developed markets, profits taken from long-only equities and an element of downside protection sought.”
In general, those funds at the top of the table have also exhibited the greatest risk. The Odey fund, for example, attracts a risk score of 102 from Financial Express. This is high even among the equity funds – the Henderson European Absolute Return, for example, has a risk score of 43, but some of the bond funds have risk scores as low as 11.
Cherry Reynard is a freelance journalist
