This week we’ve heard from a number of managers who have shielded their investors from the worst of the recent market slump.
It has been a nasty few weeks, and it’s in times like these that fund managers have the greatest opportunity to prove their worth.
Three who did just that included Henderson’s Luke Newman, Four Capital’s Mike Pinggera and Artemis’s William Littlewood – all quoted in this week’s magazine.
Henderson’s Mr Newman benefited after sticking with his stake in beleaguered insurance companies, which have outshone other equities in the midst of the recent slump. Four Capital’s Mr Pinggera made a shrewd decision to go to an ultra-bearish 75 per cent cash in his multi-asset fund, while Artemis’s Mr Littlewood cut his net equity exposure to 52 per cent in the run-up to the stockmarket falls.
In the credit crisis of 2008, many UK investors were burned by absolute return funds that had promised to protect them from market fallsSince September 19, the FTSE 100 had lost 6.4 per cent, as at Wednesday (October 22), but the funds lost less. Mr Newman lost just 1.65 per cent in his absolute return fund, according to data from FE Analytics.
The market rout draws my mind back to the IMA’s ever-controversial Targeted Absolute Return sector.
In the credit crisis of 2008, many UK investors were burned by absolute return funds that had promised to protect them from market falls.
It turned out that while the funds were able to rise in a rising market, many of them were unprepared for the post-Lehman Brothers environment.
In the years since, many of those funds have either closed or reformed, while a number of far more effective new funds have entered the sector. Some time ago, I argued that we were finally reaching a stage at which these funds could broadly claim to have achieved credibility.
Looking at the period since the September 19 peak, funds in the IMA Targeted Absolute Return fund sector are currently reporting an average loss of just 1.12 per cent – considerably better than the market’s 6.4 per cent fall.
Has the sector come of age?
There’s a hitch, though.
Unfortunately, there are two usual suspects in the sector that are still reporting losses over the past three years. The CF Richmond Multi Asset fund lost 11.97 per cent, while hedge fund manager Hugh Hendry’s CF Eclectica Absolute Macro lost 12.3 per cent, according to the data.
The IMA has so far avoided ejecting funds from Targeted Absolute Return, although it has said that it will continue to monitor the sector with an eye to possible new fund exclusion rules.
There is no question that criticism of active fund management as worthless has now reached fever pitch.
I would argue that the time has come for the IMA to take more decisive action on issues such as these. Let’s see funds kicked out of the sector.
How is the industry supposed to show it works if it baulks at policing itself?
John Kenchington is editor of Investment Adviser
