Absolute return is far from fabulous
attractive return and low volatility as part of their portfolio.”
UNACCEPTABLE
Patrick Connolly, chartered financial planner at Chase de Vere, said 86 out of 102 absolute return funds have lost money in the past 12 months: “This is unacceptable from an asset class which is designed to produce a positive return in all environments.”
Too many investors who were looking for protection have been losing money and paying high charges for the privilege. “Some funds do a good job but far too many charge too much and deliver too little,” he added.
Investors bought absolute return funds as protection against volatile stock markets but they have not always got it: “Too many funds are closely linked to share values, so when markets fall they fall also.”
Absolute return funds all adopt very different approaches and there were some winners among the losers. Connolly said: “Over the past year the top performing fund made a gain of 10.9 per cent while the worst performer lost 22.7 per cent.”
AJ Bell’s research showed that Polar Capital UK Absolute Equity was top performer over three years, growing 57 per cent. Man GLG Alpha Select Alternative grew 20 per cent, while Newton Multi-Asset Diversified Return, Smith & Williamson Defensive Growth and Schroder UK Dynamic Absolute Return also held their own.
‘Some funds do a good job but far too many charge too much and deliver too little’
MIXED BAG
Darius McDermott, managing director of investment platform Chelsea Financial Services, said the sector is a “really mixed bag” so you have to examine what you are investing in.
He said you should check your portfolio for duds although you can forgive one year’s underperformance, as the last 12 months were volatile. “However, if your fund has lost money for two or more consecutive years you should seek an alternative.”
His favourite fund is Janus Henderson UK Absolute Return, which has produced negative returns in just two out of 15 years. “As far as I am concerned it has done its job.”
McDermott said that if you want lower-risk returns consider cash or a bond fund: “Remember, bonds do not guarantee positive returns either.”
Every investment sector will fall at some point but the problem with absolute return is that it suggests otherwise, and charges extra for something it cannot reliably deliver.