Absolute return funds' woes mount

Branded the bad boys of the investment world, absolute return funds have gained a reputation for not doing what they're supposed to do. These funds, which should deliver returns above zero despite what is happening in markets, have done the opposite in many cases – by losing money.

The Jupiter Absolute Return fund run by the once "golden manager" Philip Gibbs, for example, was championed by Hargreaves Lansdown, but has just been kicked off its Wealth 150 list of best buy funds. Not only has it underperformed the market, but it charges a 15 per cent fee if it does manage to beat the benchmark.

"If it has a good period of performance, it will trigger this fee of 15 per cent on returns – we don't think that's right," says Rob Morgan at Hargreaves Lansdown. "Mr Gibbs could be given a fee for generating sub-inflationary growth in the fund."

But to dismiss all absolute return funds could leave you missing out on some solid, stable performances, especially during turbulent markets and times of uncertainty.

"Generating positive returns from absolute return funds in a world punctuated by sharp bouts of extreme panic and uncontrolled euphoria has been incredibly challenging," says Tom Becket of the investment manager PSigma. "In fairness to those who have underperformed the high expectations that were set to the absolute return sector, it is hard to imagine a less supportive environment to achieve their aims."

Still, although it's been a tough time for many of these funds, which aim to deliver a positive return on a 12-month basis, there are products out there that have managed to do what they say on the tin.

"Standard Life Guaranteed Absolute Return Strategies (Gars) and Newton Real Return have delivered decent returns with low volatility," says Morgan. "Generally funds that have some flexibility of approach have done better."

The Standard Life Gars fund, for example, invests across equities, bonds and currencies, as well as more niche areas, such as interest rates.

Mr Morgan explains the Newton Real Return fund has a core investment of equities and bonds, while at the same time using other elements such as gold to help benefit from a falling market.

"We think in terms of themes, and we are cautious on our outlook," says James Harries, the manager of the Newton Real Return fund. "GDP growth will be hard to come by and there is too much debt in the developed world … we've held this view about the difficult economic backdrop for some time."

Mr Becket, believes chief among the winning funds has been the Henderson Credit Alpha, while the Legg Mason Global Credit Absolute Return is another key fund, which he says has shown real signs of promise and does not take excessive risk.

But grinding out positive returns year after year can be challenging for the best of managers, and there has been a major disparity in returns among these funds. "There are some funds which seem to perform incredibly well and some that perform incredibly badly," says Patrick Connolly of AWD Chase de Vere.

Over the past year, Mr Connolly highlights the CF Odey UK Absolute Return fund which has grown by 31 per cent, while the SVM UK Absolute Alpha fund has fallen by 21 per cent. "Neither of these performances are what you would expect if you are looking for steady and consistent returns," he adds.

"Stock markets are likely to remain volatile and so we can expect continued demand for low risk funds from investors looking for a safe haven," says Mr Connolly. "And we can also expect many investors to be enticed into paying higher fees for absolute return funds they don't really understand and for performance which may not live up to their expectations."

Emma Dunkley is a reporter at citywire.co.uk

Independent Partners; Do you need financial advice on your investments, pension or insurance? Book a free consultation with an independent Financial Adviser at VouchedFor.co.uk

Sport
England's women celebrate after their 3rd place play-off win against Germany
Women's World CupFara Williams converts penalty to secure victory and bronze medals
Arts and Entertainment
Ricardo by Edward Sutcliffe, 2014
artPortraits of LA cricketers from notorious suburb go on display
News
newsHillary Clinton comments on viral Humans of New York photo of gay teenager
Arts and Entertainment
The gang rape scene in the Royal Opera’s production of Gioachino Rossini’s Guillaume Tell has caused huge controversy
music
Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    Recruitment Genius: Sales Assistant / Buyer

    £15000 - £17000 per annum: Recruitment Genius: This company offers a range of ...

    Recruitment Genius: Customer Service Advisor

    £15000 - £16000 per annum: Recruitment Genius: Customer Service Advisors are r...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + OTE £45K: SThree: SThree were established in 1986....

    Recruitment Genius: Compliance Manager

    £40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

    Day In a Page

    The Greek referendum exposes a gaping hole at the heart of the European Union – its distinct lack of any genuine popular legitimacy

    Gaping hole at the heart of the European Union

    Treatment of Greece has shown up a lack of genuine legitimacy
    Number of young homeless in Britain 'more than three times the official figures'

    'Everything changed when I went to the hostel'

    Number of young homeless people in Britain is 'more than three times the official figures'
    Compton Cricket Club

    Compton Cricket Club

    Portraits of LA cricketers from notorious suburb to be displayed in London
    London now the global money-laundering centre for the drug trade, says crime expert

    Wlecome to London, drug money-laundering centre for the world

    'Mexico is its heart and London is its head'
    The Buddhist temple minutes from Centre Court that helps a winner keep on winning

    The Buddhist temple minutes from Centre Court

    It helps a winner keep on winning
    Is this the future of flying: battery-powered planes made of plastic, and without flight decks?

    Is this the future of flying?

    Battery-powered planes made of plastic, and without flight decks
    Isis are barbarians – but the Caliphate is a dream at the heart of all Muslim traditions

    Isis are barbarians

    but the Caliphate is an ancient Muslim ideal
    The Brink's-Mat curse strikes again: three tons of stolen gold that brought only grief

    Curse of Brink's Mat strikes again

    Death of John 'Goldfinger' Palmer the latest killing related to 1983 heist
    Greece debt crisis: 'The ministers talk to us about miracles' – why Greeks are cynical ahead of the bailout referendum

    'The ministers talk to us about miracles'

    Why Greeks are cynical ahead of the bailout referendum
    Call of the wild: How science is learning to decode the way animals communicate

    Call of the wild

    How science is learning to decode the way animals communicate
    Greece debt crisis: What happened to democracy when it’s a case of 'Vote Yes or else'?

    'The economic collapse has happened. What is at risk now is democracy...'

    If it doesn’t work in Europe, how is it supposed to work in India or the Middle East, asks Robert Fisk
    The science of swearing: What lies behind the use of four-letter words?

    The science of swearing

    What lies behind the use of four-letter words?
    The Real Stories of Migrant Britain: Clive fled from Zimbabwe - now it won't have him back

    The Real Stories of Migrant Britain

    Clive fled from Zimbabwe - now it won’t have him back
    Africa on the menu: Three foodie friends want to popularise dishes from the continent

    Africa on the menu

    Three foodie friends want to popularise dishes from the hot new continent
    Donna Karan is stepping down after 30 years - so who will fill the DKNY creator's boots?

    Who will fill Donna Karan's boots?

    The designer is stepping down as Chief Designer of DKNY after 30 years. Alexander Fury looks back at the career of 'America's Chanel'