Absolute return funds have commanded significant investor interest in recent months – unsurprisingly given the continued focus on caution.
Figures from the Investment Association (IA) show that in eight of the 12 months to the end of March 2017, the Targeted Absolute Return sector was the best-selling category, including a high of £482m of net retail sales in July 2016.
But while data from FE shows the group has delivered an average three-year return to May 18 of just 8.1 per cent, in sterling terms, the combined average of Investment Adviser 100 Club members is a much more impressive 16 per cent. Of the five members, the best-performing Absolute Return fund in the period is category winner JPM Global Macro Opportunities, with a return of 24.9 per cent. It was also recently added to the Adviser Centre’s recommended list.
Gill Hutchison, research director at the consultancy firm, comments: “The fund is managed on the principle that macroeconomic trends and changes in the global environment are typically the most important drivers of asset prices. Additionally, the management team believes that financial markets often misprice trends, providing investment opportunities.
“The team typically works with between six and 10 themes, while the portfolio incorporates 20-40 strategies. We believe the fund represents an interesting diversifier for long-biased portfolios, or as a higher-risk option within a blend of total return/absolute return funds.”
Seen by many as the ‘Marmite’ of investments – as many either love or loathe these vehicles – the sector has been taking the headlines for many of the right reasons, with the long/short strategies adopted by many benefiting from the uncertain markets.
Away from absolute return, the alternatives space has seen a number of trends emerge in the past 12 months, with healthcare/biotechnology gathering more interest, especially in the wake of the US election and developments on drug pricing and the partial repeal of Obamacare.
Technology, in both the healthcare space and globally, is also advancing fast, with improvements in robotics and in the financial services industry, along with the advent of robo-advice – a theme that could benefit many investors.
Even governments are realising the potential, with the European Parliament urging the European Commission in May to devise a set of rules to accelerate the development of financial services technology, or fintech, particularly around cybersecurity and experimentation with new technologies.
Cora van Nieuwenhuizen, the lead MEP on the vote, says: “The development of new financial services and the digitalisation of existing services will change market dynamics for the financial services sector, and European regulators must respond. Our challenge is to deliver certainty without hampering innovation. It’s time for Europe to embrace and adapt to fintech, which has the potential to transform the world of finance and regulatory innovation.”
Thus it is perhaps unsurprising that within the 100 Club Specialist Sectors and Assets category, it is technology fund Polar Capital Global Technology that delivered the best return in the 12 months to May 18 2017. Its return of 63.8 per cent, in sterling terms, outpaced even the private equity representative in the form of Electra Private Equity, which returned 43.5 per cent in the year, FE data shows.
But within the alternatives space it has been property that has seen the most upheaval, with many open-ended offerings placing restrictions on their funds as redemptions rocketed following the Brexit result. Of the five 100 Club members in the Property category, none were forced to suspend trading, despite only one – Talisein Property – being structured as an investment trust.
As a result, the combined average one-year performance of the five property members of 13.7 per cent was almost double the IA Property sector average of 7.7 per cent, in sterling terms. The members also outpaced the AIC Property – Direct UK sector average return of 11.7 per cent, suggesting that it is not always the structure of the vehicle that is most important when picking an investment.
While there have been plenty of disruptive events that in the past may have derailed the performance of specialist and alternative sectors, it seems investors are continuing to look beyond the traditional options to find the best opportunities, regardless of the global economic and political outlook.
Nyree Stewart is features editor at Investment Adviser
