Your IndustrySep 22 2014

Absolute return - September 2014

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Approx.40min

    Absolute return - September 2014

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      CPD
      Approx.40min
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      Introduction

      By Ellie Duncan
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      The IMA’s definition of its Targeted Absolute Return sector, which comprises 76 funds, is “funds managed with the aim of delivering positive returns in any market conditions, but returns are not guaranteed”.

      The Investment Adviser Absolute Return Survey 2014 sought views from advisers on absolute return funds. There were 162 respondents, indicating that absolute return funds remain a talking point among the adviser community.

      In response to a question about what types of funds they are allocating to, 56.79 per cent of advisers say they allocate to absolute return funds. Only equity funds and multi-asset funds are more popular among advisers.

      When asked whether they prefer absolute return equity funds, absolute return bond funds or a combination of the two, 76.09 per cent choose a combination for their clients, although 21.74 per cent select absolute return equity funds.

      On the question of why they use absolute return funds, 79.35 per cent cite portfolio diversification. This query triggered some additional reasons, such as “risk mitigation”, the managing of volatility and capital preservation.

      Sonja Uys, co-manager of Insight Investment’s Absolute Insight fund, suggests: “It is important to understand a manager’s attitude to volatility, capital preservation and market correlation.

      “They may believe higher volatility or loss of capital in the short term is acceptable in pursuit of a longer-term absolute return target – but this could make their fund unsuitable for some investors.”

      Absolute return funds have come under scrutiny in the past for leading investors to believe that returns are guaranteed. This culminated in a review of the IMA Absolute Return sector, which was renamed the IMA Targeted Absolute Return sector in 2013.

      In this survey, when asked whether there should be more than one IMA sector for absolute return funds to make performance comparisons easier, 52.47 per cent believe there should be categories for equities and bonds. But 24.07 per cent argue there are too many IMA sectors already.

      So the debate around absolute return rumbles on, although advisers are finding these funds useful.

      Ellie Duncan is deputy features editor at Investment Adviser

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