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Fund Review: Absolute Return


The Investment Association, formerly known as the Investment Management Association, responded by adding the prefix ‘Targeted’ to the Absolute Return sector name back in 2013.

Its definition of the funds within this renamed Targeted Absolute Return sector are those “managed with the aim of delivering positive returns in any market conditions”, with the caveat that returns “are not guaranteed”.

It also stipulates that funds in this sector must “clearly state the timeframes over which they aim to meet their stated objectives to allow the Investment Association and investors to make a distinction between funds on this basis” and that this timeframe should be no longer than three years.

There are currently 85 funds sitting in this sector, according to FE Analytics data, and it appears that these types of funds are coming back into favour, as investors take a cautious approach amid some market volatility.

The most recent Investment Association figures for April 2015 revealed Targeted Absolute Return funds had their highest ever net retail sales on record at £529m, making it the best-selling sector in the month.

This year the sector has recorded inflows in every month to April, but, even so, those numbers were a significant jump from the net retail sales of £293m in March.

Figures from investment platform FundsNetwork show a similar trend, as sales into lower-risk asset classes “flourished” in April, it stated.

The Targeted Absolute Return sector was the third best-selling sector by adviser sales on FundsNetwork.

Jon Everill, head of advisory services at FundsNetwork, comments: “April was punctuated by volatility and nervousness in the market as the UK general election took centre stage.”

He adds: “While the general election is over, we can expect further nervousness and volatility ahead as a result of a pending EU referendum. As a result, we expect to see a continued trend of investor caution over the next few months.”

There is no such thing as a typical absolute return fund, although many use a combination of traditional assets, like equities and bonds, alongside derivatives and other complex instruments, to produce a return.

In the past 12 months to June 15, the CF Eclectica Absolute Macro fund has delivered the best return of 22.80 per cent, well above the sector average of 3.84 per cent over the same period, according to FE Analytics.

There are only seven funds in the Targeted Absolute Return sector with a 10-year performance track record. However, topping the performance table in the 10 years to June 15 is the Newton Real Return fund, run by Iain Stewart, who has generated an impressive 93.66 per cent return.

This is followed by the BlackRock UK Absolute Alpha fund, which has returned 62.93 per cent to investors over the past 10 years, compared to a sector average of 48.91 per cent.


CF Eclectica Absolute Macro

In its factsheet, Hugh Hendry’s fund, which uses a combination of long and short positions, reveals its long US dollar exposure has been a drag on performance. However, FE Analytics shows it is the second best performing fund in the Investment Association Targeted Absolute Return sector in the past 12 months, generating 21.55 per cent. But performance lagged over three years to June 16, delivering just 10.44 per cent, against the sector average of 14.58 per cent.

BlackRock UK Absolute Alpha

This has one of the longest track records in the Investment Association Targeted Absolute Return sector, having launched in April 2005. In that time to June 16, the fund has returned 62.72 per cent, compared to a sector average of 48.62 per cent. The £202.62m portfolio is managed by Nicholas Osborne and Nigel Ridge, who aim to achieve returns through a combination of capital growth and income. “The fund will be managed with the aim of delivering absolute (more than zero) returns on a 12-month basis in any market conditions,” states its factsheet.


FP Argonaut Absolute Return

Barry Norris’s £134m fund is an Investment Adviser 100 Club 2014 member, having delivered consistent returns over one, three and five years. According to the fund factsheet, Mr Norris runs the portfolio using his “earnings surprise” investment process. The fund aims to provide positive absolute returns over a three-year rolling period “utilising a variety of asset classes… regardless of market conditions”. The fund has returned 81.82 per cent to investors over five years to June 16, FE Analytics reveals, placing it in the top-three best performing funds in that period. In the past 12 months the fund generated a respectable 16.51 per cent return, well above the 3.72 per cent average delivered by the sector.

In this special report