An IMA sector launch – the ultimate ‘sell’ signal?

John Kenchington

The grand opening of the Investment Management Association’s new Global Emerging Market Bond sector has come just in time to underscore the misery suffered by investors in the asset class last year.

The sector was the worst performer by far in 2013, with its 25 constituent funds losing an average of 9.6 per cent compared to a 5 per cent average loss from funds in the IMA UK Gilts sector – the next-worst performer.

One of our reporters pointed out last week the IMA announcing a new sector is a sure-fire sell signal for the asset class because by the time the sector opens up, its members are sure to be overhyped and overbought.

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We’ve seen the same thing happen with the IMA Property and China/Greater China sectors in the past few years, for example. The IMA also launched its Technology & Telecommunications fund sector in 2001 just as the bubble in that sector was beginning to burst.

But it was not all bad news for the IMA sectors last year as one controversial player quietly enjoyed a reversal of fortunes.

In the IMA Targeted Absolute Return sector, the vast majority of member funds actually delivered on their promise of positive returns in 2013.

Only four funds failed to finish in the black, including the worst offender, the Liontrust European Absolute Return fund, which lost 7.3 per cent – disappointing considering the past form of manager James Inglis-Jones. But even that is a far cry from the days of seeing 40 per cent losses in the sector, which lost its credibility in the financial crisis and has been struggling to claw it back since.

Credit where it’s due – the sector may now have come of age and it should definitely be considered in these times of dubious market rallies.

James Hanbury’s soft-closed CF Odey Absolute Return fund has been flying, gaining 45 per cent last year and now having returned 100 per cent in total in the past 3 years, although it’s a full-bore, ultra-volatile hedge fund product.

Paul Marriage had another stonking year on his Cazenove Absolute UK Dynamic fund, but it’s closed to new investments and looks vulnerable to markets calling time on smaller companies

My top pick is the Schroders-owned Cazenove UK Absolute Target fund run by Steve Cordell and Julie Dean. Under founding manager Tim Russell it lost 6.3 per cent in 2010, but under current management it gained 9.6 per cent last year, 4.3 per cent in 2012 and 8.6 per cent in 2011 with modest volatility readouts.

With £390m of assets, it still has plenty of capacity and it benefits from the Cazenove business cycle investing approach.

It will be interesting to see whether interest grows or falls when Schroders rebrands the Cazenove products this Spring.

John Kenchington is editor of Investment Adviser