Mr Clunie, who manages Jupiter’s £433m Absolute Return fund, questioned how fund managers who promise a 7 per cent return can achieve that target, bearing in mind investors are dealing in a “harsh” environment plagued by uncertainty and low rates.
Three years ago he said a 6 per cent return was the expected level for an absolute return fund, which he admitted has become a far trickier task to achieve now rates have slumped to record lows.
Back in June, the managing director at investment consulting and research firm Square Mile warned about the demand for higher returns, despite there being little in the way of attractive investment opportunities.
Mr Clunie, who joined Jupiter back in 2013, said: “It’s now time for people to tone it down and say a 4 per cent return is a good return.
“If everything goes well, then we can reach a 6 per cent return on the fund, but that’s hard work.”
He said fund managers who promise a 7 per cent return must have the skill and the “edge”, adding: “If people talk about their track record or intelligence or hard work then that is just so much waffle.”
The head of Jupiter’s absolute return strategy said fund managers need to explain clearly why they have an edge, pointing to the investment processes or data gathering which he argued should stand out against other investors.
“I think collectively we could all do a better job of giving clients realistic expectations, and those expectations should be low from now on.”
The Jupiter Absolute Return fund, which specialises in long/short investing, delivered a return of 8 per cent over the past year, outperforming the 0.9 per cent average for the IA Targeted Absolute Return sector, FE figures reveal.
The absolute return sector appears to operate on the adage ‘survival of the fattest’ Alan MillerAlan Miller, chief investment officer at SCM Direct, said he has been cynical of the performance of absolute return funds for years, saying many have produced “precious little” returns for investors.
“What is also mystifying is why advisers are sending clients hard earned money to this sector despite the dismal performance,” he said, pointing out the Investment Association Targeted Absolute Return sector was the best-selling sector in June, with net retail sales hitting £445m.
Mr Miller said the IA Targeted Absolute Return sector appears to operate on the adage “survival of the fattest” in terms of huge fees, often including performance fees.
The investment chief pointed to the “fixation” of some investors and advisers with volatility, and questioned if this has made them forget about returns.
Blair Cann, senior partner and adviser for M Thurlow & Co, said any fund manager who promises a 7 per cent return would be treated with the utmost suspicion by anyone with an IQ in double figures.
“Although an elite minority group of fund managers might achieve this figure - Terry Smith of Fundsmith springs to mind - the majority will not, unless the sector they are operating in is surging forwards as part of a cycle.
“So if anyone out there is investing on a promise of 7 per cent returns, they need to speak to a financial adviser pretty quickly.”
katherine.denham@ft.com
