Glut of absolute return funds makes life harder for IFAs

Baring Asset Management said the IMA sector was becoming bloated with products, some of which were not genuine absolute return vehicles, but rather traditional funds making small use of derivatives.

Ian Pascal, marketing director, said: "There are a lot of new funds out there, and it's very difficult for advisers to sort the wheat from the chaff.

"It will take awhile to see whether these funds are absolute return funds or actually just long-only funds in sheep's clothing."

Mark Noble, head of retail sales at SVM Asset Management, said there was a danger some absolute return funds would be cooked up by marketing departments in response to the economic downturn.

"It forces intermediaries to look under the bonnet [at the underlying investment processes], and there's no excuse for not doing that," he said.

He added that a prolonged uplift in equity markets could send client money back into sectors like IMA Active Managed.

"There's a risk people will pile out of the [IMA Absolute Return] sector," he said.

"Clients were incredibly anxious [18 months ago], and going into absolute return funds was a reaction to that."

Although the average fund size in the sector is more than £225m, some funds have seen significant inflows since the start of the market turmoil.

Mark Lyttleton's BlackRock UK Absolute Alpha fund now stands at £1.5bn, while the Newton Real Return fund, formerly known as the Absolute Intrepid, stands at more than £537m.