The Absolute Return IMA sector has finally undergone its long-awaited make-over, becoming ‘Targeted Absolute Return’.
The changes came into full effect on 1 June, having had references to a typical 12-month timeframe in which to meet objectives removed. Now, funds must clearly state a time in which they aim to meet their objectives to make a clear distinction from others. It must not be longer than three years.
So, with the changes in mind, here are five points to keep in mind when choosing an absolute return fund.
1. Look at what timeframe the fund is using. Since the sector has been redefined, funds can now choose a timeframe in which they must meet their objectives. This can be no longer than three years.
2. Find out which asset class the fund focuses on. Each absolute return fund differs, in that it may be equity, fixed income or any other alternative investment-led. It can be a range of all; some favour a more multi-asset approach.
3. Analyse the fund’s strategy. Many absolute return funds have different strategies – it is important to look at where it is allocating to and how.
4. Find out what sectors or market cap fund invests in. It may not be clear from the outset what sectors or cap the fund invests in. Take a look at the factsheet to get some more information. Some favour a small-cap approach and invest in cyclical sectors.
5. Consider whether you understand the jargon. One problem the industry had with absolute return funds is the objectives were not clear. Many objectives use complex statements; check your clients understand what they are investing in before taking the plunge.
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