Investments  

Barings’ absolute return fund to follow long/short strategy

Barings Asset Management has unveiled an absolute return Ucits fund targeting positive returns over a three-year period in response to spiking popularity for such products.

The Baring Dynamic Absolute Return Fund will follow a long/short strategy and is expected to hold between 10 to 20 diversified market strategies with target volatility of around 7 per cent.

The Dublin-domiciled investment product will be managed by James Ind who joined the fund house last year, having previously managed long/short multi-asset strategies at GLG Partners, Russell Investments and Merrill Lynch Investment Managers.

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He is supported by an experienced multi-asset team, and the fund will use Barings’ Strategic Policy Group to identify both absolute value and relative value opportunities. Positions will be subject to risk budgeting constraints.

The new fund follows on from the launch of the Baring Multi-Asset Income fund which was announced in August last year. The fund, which is skewed to investors who are looking for a retirement income solution, has returned minus 0.58 per cent from 29 July last year to 1 July 2016.

The multi-asset strategy targets annual yield of 5 per cent with monthly distribution.

Provider view

James Ind, investment manager of the Baring Dynamic Absolute Return Fund, said: “With a consistent process developed over 13 years, Barings has delivered exceptional multi-asset performance. The demand for absolute return products continues to grow among all client segments. It is a natural step for Barings to develop a more market-neutral offering given its track record of success in asset allocation.

“Investment returns are under significant pressure, with a third of the sovereign bond universe offering negative yields. The need for alternative funds to diversify traditional growth assets is driving significant fund search activity.

Adviser view

Jonothan McColgan, director of Bath-based Combined Financial Strategies, said: “Absolute return funds have a place in the market but my worry is they have been marketed as products that would generate positive results regardless of market conditions but they rarely do.

“As long as the Bank of England does not have to do quantitive easing, we will start to get back into the normal investment cycle. Once we get back into the normal cycle, where the economy is based on inflation and interest rates, we will have more volatility and having a balanced portfolio becomes even more important. Having a portfolio worth a good spread of assets is a sensible idea.”

Charges

Ongoing charge figure of 0.85 per cent.

Verdict

To the lay investor, the term ‘absolute return’ is deceptive. It suggests that positive returns will be achieved 100 per cent of the time, regardless of significant headwinds that have impaired markets across the globe.

However in reality, these funds seldom meet their often ambitious return targets. Here, the fund’s OCF is a reflection of the demand growing demand for absolute return funds. Demand is likely to proliferate even further in the fallout of the contentious EU referendum vote as investors flock towards the safest propositions – even at an inflated cost.