Half of absolute return funds miss target: MM survey

The majority of absolute return funds failed to meet the sector objective of a positive return over 12 months, Money Management can reveal.

In our latest survey of absolute return funds, for data taken to 1 August 2012, of 78 funds in the IMA Absolute Return sector, 38 made a loss. Some 31 funds achieved positive growth, albeit in varying amounts, and one fund – the Schroder Absolute Return Bond fund – remained stationary.

On an initial investment of £1,000, the sector returned £994 on average with volatility of 1.5.

While funds in the sector are difficult to directly compare since they use varying strategies, the IMA sector definition says funds qualifying for this sector must aim to produce an absolute return – meaning more than zero – over a 12-month period.

The excerpt below, taken from the survey, shows the five lowest performing funds over one year.

Fund name	1 yr perf	2 yr perf	3 year perf	3 yr vol
L&G European Absolute Trust R Acc	£841	£947	–	–
SVM UK Absolute Alpha A	£843	£845	£757	2.4
GLG EM Diversified Alternative DN H GBP	£886	£883	–	–
CF Absolute Return Cautious Multi-Asset A Inc	£909	£970	£1,085	2.1
GLG EM Equity Alternative DL H GBP	£912	£1,114	–	–
Sector average	£994	£1,046	£1,116	1.5

Debate rages on about the classification of the Absolute Return sector, with the Investment Management Association (IMA) reviewing what it comprises and the FSA confirming a probe into the fund type.

Unlike the majority of other sectors, which are input-based, the Absolute Return sector is outcomes-based. This means a wide range of techniques may be employed by managers in the category to meet the same aim.

“It is not like picking a UK equity fund,” said Giles Marriage, director at Thesis Asset Management. “This is a much more difficult fund to fish in.”

There has been some concern that investors are misled by the term ‘absolute’ to think it means guaranteed, which it does not.