Product review: Threadneedle Dynamic Real Return fund

Threadneedle has launched a multi-asset absolute return fund that aims to provide returns equivalent to equities, but with a reduced volatility.

The Dynamic Real Return fund, lead-managed by Toby Nangle, will invest in a mix of equities, fixed income, commodities, property, cash and alternative investments, aiming to exploit pricing differences between those asset classes.

Threadneedle defines ‘equity-like’ returns as outperforming consumer price index (CPI) inflation by four percentage points and the fund aims to deliver this over a three- to five-year term.

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The fund also aims to carry volatility at two thirds that of equities and has the stated aim of providing a positive return over any three-year period, regardless of market conditions.

Mr Nangle will be supported by Alex Lyle, the firm’s head of managed funds, with additional input from the asset allocation strategy group, which features five senior members of Threadneedle’s team, each specialising in a different asset class: Leigh Harrison (equities), Jim Cielinski (fixed income), William Davies (global equities) Matt Cobon (currency) and Mark Burgess (CIO).

The fund is available to retail investors as a clean share class at an AMC of 0.75 per cent.

MM view

The temptation is to assume that funds making these sort of promises are too good to be true. Achieving all the upside of equity investment while removing the risk is a bold aim.

If Toby Nangle’s support team of big hitters can achieve the fund’s stated target, investors will be happy.

The management team involved certainly has access to a breadth of expertise across a range of asset classes and the fund’s success will be dependent on their ability to work together to exploit that through shared knowledge.

The fund’s set-up looks similar in many ways to Threadneedle’s Multi-asset target Alpha fund, the first product that Mr Nangle took lead management duties on following his arrival at the firm from Barings. The Luxembourg-domiciled fund launched in September 2012 and follows a similar asset allocation approach, although it allows greater freedom regarding volatility.

A broad mix of funds are housed by the IMA’s recently renamed Targeted Absolute Return sector so comparison may not always be like for like. That said, despite a bright start, the Target Alpha fund has underperformed the sector average since launch.

Threadneedle remains upbeat, however, arguing that diversity of underlying assets reduces risk, especially compared with more traditional funds with basic equity/bond asset mixes.

That’s hard to argue with, but Mr Nangle’s team needs to use its combined experience to convert that reduced risk into the inflation-busting returns to which it aspires.