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

Finacial products from our partners
Property search
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

ES Rentals

    iJobs Job Widget
    iJobs Money & Business

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: £20000 - £25000 per annum + c...

    Recruitment Genius: Account Handler - Personal Lines

    £20000 per annum: Recruitment Genius: This provider of insurance and financial...

    Recruitment Genius: Graduate Developer / IT Support Engineer

    £16000 - £25000 per annum: Recruitment Genius: This fast growing financial ser...

    SThree: Trainee Recruitment Consultant

    £20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250 ...

    Day In a Page

    Solved after 200 years: the mysterious deaths of 3,000 soldiers from Napoleon's army

    Solved after 200 years

    The mysterious deaths of 3,000 soldiers from Napoleon's army
    Every regional power has betrayed the Kurds so Turkish bombing is no surprise

    Robert Fisk on the Turkey conflict

    Every regional power has betrayed the Kurds so Turkish bombing is no surprise
    Investigation into wreck of unidentified submarine found off the coast of Sweden

    Sunken sub

    Investigation underway into wreck of an unidentified submarine found off the coast of Sweden
    Instagram and Facebook have 'totally changed' the way people buy clothes

    Age of the selfie

    Instagram and Facebook have 'totally changed' the way people buy clothes
    Not so square: How BBC's Bloomsbury saga is sexing up the period drama

    Not so square

    How Virginia Woolf saga is sexing up the BBC period drama
    Rio Olympics 2016: The seven teenagers still carrying a torch for our Games hopes

    Still carrying the torch

    The seven teenagers given our Olympic hopes
    The West likes to think that 'civilisation' will defeat Isis, but history suggests otherwise

    The West likes to think that 'civilisation' will defeat Isis...

    ...but history suggests otherwise
    The bald truth: How one author's thinning hair made him a Wayne Rooney sympathiser

    The bald truth

    How thinning hair made me a Wayne Rooney sympathiser
    Froome wins second Tour de France after triumphant ride into Paris with Team Sky

    Tour de France 2015

    Froome rides into Paris to win historic second Tour
    Fifteen years ago, Concorde crashed, and a dream died. Today, the desire to travel faster than the speed of sound is growing once again

    A new beginning for supersonic flight?

    Concorde's successors are in the works 15 years on from the Paris crash
    I would never quit Labour, says Liz Kendall

    I would never quit party, says Liz Kendall

    Latest on the Labour leadership contest
    Froome seals second Tour de France victory

    Never mind Pinot, it’s bubbly for Froome

    Second Tour de France victory all but sealed
    Oh really? How the 'lowest form of wit' makes people brighter and more creative

    The uses of sarcasm

    'Lowest form of wit' actually makes people brighter and more creative
    A magazine editor with no vanity, and lots of flair

    No vanity, but lots of flair

    A tribute to the magazine editor Ingrid Sischy
    Foraging: How the British rediscovered their taste for chasing after wild food

    In praise of foraging

    How the British rediscovered their taste for wild food