The fund management industry could do a better job of giving clients realistic expectations on their investments, rather than just “waffle”, Jupiter’s James Clunie has said.
Mr Clunie, who manages Jupiter’s £433m Absolute Return fund, questioned how fund managers who promised a 7 per cent return could achieve that target, bearing in mind investors were 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 had become a far trickier task to achieve now rates had 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 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 added that 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 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 Investment Association (IA) Targeted Absolute Return sector, FE figures reveal.
Alan Miller, chief investment officer at SCM Direct, said he had been cynical of the performance of absolute return funds for years, adding that many had produced “precious little” returns for investors.
He said: “What is also mystifying, is why advisers are sending clients’ hard-earned money to this sector despite the dismal performance,” pointing out that the IA Targeted Absolute Return sector was the best-selling sector in June, with net retail sales hitting £445m.
Mr Miller added that the sector appeared to operate on the adage, “survival of the fattest”, in terms of huge fees, often including performance fees.
The investment chief referred to the “fixation” of some investors and advisers on volatility, and questioned if this had made them forget about returns.
Blair Cann, senior partner and adviser for M Thurlow & Co, said any fund manager who promised a 7 per cent return would be treated with the utmost suspicion by anyone with an IQ in double figures.
He added: “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.