The best and worst performing absolute return funds over the past three years have been revealed.
Data from FE Analytics, covering the period from the January 1, 2016, to January 1, 2019, shows the £524m Polar Capital UK Absolute Equity fund returned 57 per cent in the three year period, placing it considerably ahead of the next best performer, the £800m Man GLG Select Alternative fund, which returned 20 per cent.
In total, investors ploughed £7.2bn into absolute return funds in the three years since the start of 2016.
Absolute return funds have been the subject of criticism from many in the industry, with Abraham Okusanya, principal of consultancy firm Finalytiq, saying such funds were difficult even for investment industry professionals to understand.
He said: "The investment industry loves complexity, driven by the twisted belief that complexity should earn a higher fee.
"But complexity breeds risk. Complexity makes it harder for investment teams to explain their own strategy. It makes it harder for advisers to conduct adequate due-diligence on a product. And the investor is worse for it. It’s the classic lose-lose-lose."
Robin Geffen, founder and chief executive of fund house Neptune, which markets products that directly compete with absolute return funds, said the products were "becoming ever more complex" and added that the focus on minimising volatility didn't serve a need for investors, as if the investors priority was to minimise volatility "they can put the money in a sock and put the sock under the mattress".
Charles Hovenden, a fund manager at Square Mile who focuses on absolute return funds, said the value of the sector will more likely be seen in times of heightened market volatility, rather than in the more benign conditions that have dominated markets for most of the past three years.
Laura Suter, personal finance analyst at AJ Bell, said: "So-called safe-haven funds have failed to deliver through the Brexit turmoil, with just one absolute return fund managing to deliver a positive return in each of the past three years.
"In the three years over the Brexit process just 64 absolute return funds out of 105 delivered a positive return. However, the three-year figures hide big volatility in the funds, and the only one to deliver a positive return in each of those three years was Natixis H2O MultiReturns."
Ms Suter added: "The three-year performance figures over the Brexit market turmoil highlight the vast disparity and volatility in absolute return funds and show that many are far from delivering in all market conditions."
The worst performer in the sector during the three year period under consideration was the £35m Argonaut Absolute Return fund, which lost 23 per cent.
A representative of the company running this fund said: "The Argonaut Absolute Return Fund has been at the top of the sector in four of the last six calendar years, and a top quartile performer since launch in 2009.
"The fund had a particularly difficult 2016, which is reflected in the three year performance ranking."
The largest fund, in terms of assets, on the worst performers list, was the £1.4bn Aviva Investors Multi Strategy Target Income. This fund has lost investors 8.6 per cent in three years.
A representative of Aviva Investors said: "In 2018, we made changes to the portfolio management line-up across our AIMS funds and added resources to the broader multi-asset and macro function. We have also strengthened in other areas of the investment floor, notably equities.
"We believe these changes will improve processes, idea generation and, over time, performance across our AIMS range.
"Looking ahead, we will continue take a longer-term perspective across our portfolios. We believe we are well-positioned for an environment in which growth expectations stabilise and bond yields begin to move higher again.
"However, we are equally conscious of the risks to this positioning and are constructing our portfolio to reflect a range of different market outcomes."
Standard Life's GARS fund, which was once the largest absolute return fund on the market, lost 6.4 per cent over the past three years, meaning it avoided placing among the bottom 10 worst performers.
The fund is currently £12.6bn in size after a haemorrhaging cash in recent years amid poor performance. As recently as early 2017, GARS was £24bn in size.
david.thorpe@ft.com
