Investors flee Absolute Return funds

Investors flee Absolute Return funds

Investors pulled £501m from the Targeted Absolute Return fund sector in April, making it the least popular asset class with UK investors in the month.

The sector has been blighted by poor performance in recent times, having lost more than 2 per cent in 2018, and returned 3 per cent over the past three years to June 6.

In contrast, investor appetite for funds that invest in the UK stock market is at the highest level for two years, despite investors having stuck to asset classes they perceived to be lower risk.

Data from the Investment Association (IA) released yesterday (6 June) showed investors withdrew a net £3m from UK funds in April, the lowest level of withdrawals for two years.

Overall, investors pushed a net of £2.2bn into UK open-ended funds in April. But that was £600m lower than in the same month last year.

Chris Cummings, chief executive of the Investment Association, said: "Confidence bounced back in April, with net retail sales turning positive for the first time in six months and £2.2bn placed into funds.

"Bonds fared particularly well again, a sign that investors are managing their portfolio risk. Strong sales to Mixed Asset and Global Equity funds show a continued appetite for diversification."

Jason Hollands, managing director for business development and communications at wealth manager Tilney, thought the end of the tax year had contributed to the inflows.

The most bought sector by investors was fixed income, with £1.6bn of net inflows. Within that the most bought sector was Strategic Bond, which had £859m of net inflows.

The picture for equity funds was muted, with net inflows across all sectors of £144m.

The IA Global sector continued to prop up the rest, attracting net inflows of £971m.

All other global equity sectors suffered outflows, except Asian equities.

The heightened political and economic uncertainty in the Eurozone took its toll on investor sentiment as outflows from European equity funds were £410m in April, and over the past year investors have withdrawn £3.8bn from the asset class over the past year.

Francis Klonowski, an adviser at Klonowski and Co in Leeds, said he doesn't use absolute return funds in his portfolios, but comes across them with some of the discretionary fund managers he works with.

He said: "There seem to be a lot of conditions and complications attached when you are looking at what returns will be.

"And the idea that many of them have, that they can deliver a positive return in all market conditions seems impossible, if that could be done we would all do it.

"My view is that if a client cannot take some years of negative returns then they shouldn’t be in the market.

"A lot of the time with these absolute return funds, you have to google what it is they are investing in, and I don’t like that."