So far this year these types of funds are proving very popular, according to the Investment Association’s (IA) net retail sales figures for the Targeted Absolute Return sector. These show this sector attracted big inflows in each month from April 2015 to April 2016 apart from one, having seen outflows of £38m in September last year.

David Bint, Standard Life Investments’ multi-asset investment specialist, observes the sector is gaining momentum: “I think it’s a trend that’s been going on for more than just this year. It’s been going on for quite some time and I think quite often when we’ve seen periods of market upheaval in the past, investors tend to focus more on the security they can find from diversified funds rather than investing in single asset classes.

“For example, after the global financial crisis of 2008 there was a big uptick in flows into multi-asset funds or multi-strategy funds, or absolute return funds – that kind of group.”

Absolute return funds offer a different approach, targeting positive returns regardless of market conditions Nick Osborne, BlackRock

Investors were also positioning in absolute return strategies ahead of the EU referendum, but now the UK has voted to leave they face an even more prolonged period of uncertainty. So could these funds’ popularity soar even further?

Fergus McCarthy, head of UK and Ireland intermediary distribution at BNY Mellon, explains investors are “looking for a better return than they can get in the bank but not wanting to take direct equity or indeed fixed income risk”.

“In the first quarter of this year, the IA Targeted Absolute Return sector was the third bestselling sector on a gross sales basis and the second bestselling sector on a net sales basis,” Mr McCarthy notes.

One of the funds’ characteristics that is particularly valued by investors is their ability to seek diversified returns in an investment environment characterised by low growth.

Nick Osborne, co-manager of the BlackRock UK Absolute Alpha fund, points out: “Absolute return funds offer a different approach, targeting positive returns regardless of market conditions. The sector is very diverse, including funds focusing on different geographies and asset classes, but in general they sit in between lower-risk bond funds and higher-risk equity products on the risk spectrum.

“As the returns of traditional bond and equity funds have become increasingly correlated, investors have recognised the important benefits of diversification that absolute return funds can offer. Many funds are able to accomplish this through their focus on alpha, rather than beta.”

There is no doubt a better understanding of absolute return strategies among advisers and investors, following improved clarification both from fund houses and the IA on what these funds aim to achieve and how they go about it, has helped.

Mr McCarthy adds: “With heightened levels of volatility looking set to continue and other global factors affecting markets, there will undoubtedly continue to be strong demand for absolute return funds going forward.

“The key for advisers is to understand the funds they’re recommending for their clients and how they go about delivering the outcome. Some of the funds in this sector are far more transparent and straightforward about how they do this than others.”

Ellie Duncan is deputy features editor at Investment Adviser