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

sportWWE latest including Sting vs Triple H, Brock Lesnar vs Roman Reigns and The Undertaker vs Bray Wyatt
Arts and Entertainment
Louis Theroux: By Reason of Insanity takes him behind the bars again
tvBy Reason of Insanity, TV review
Arts and Entertainment
Cassetteboy's latest video is called Emperor's New Clothes rap
videoThe political parody genius duo strike again with new video
Arts and Entertainment
tvPoldark, TV review
Finacial products from our partners
Property search
  • Get to the point
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

    Recruitment Genius: Retirement Coordinator - Financial Services

    Negotiable: Recruitment Genius: To provide a prompt, friendly and efficient se...

    Recruitment Genius: Annuities / Pensions Administrator

    Negotiable: Recruitment Genius: You will be the first point of contact for all...

    Ashdown Group: HR, Payroll & Benefits Officer - Altrincham - up to £24,000.

    £18000 - £24000 per annum + benefits: Ashdown Group: HR, Payroll & Benefits Of...

    Ashdown Group: Learning and Development Programme Manager

    £35000 - £38000 per annum + benefits : Ashdown Group: A highly successful, int...

    Day In a Page

    Election 2015: How many of the Government's coalition agreement promises have been kept?

    Promises, promises

    But how many coalition agreement pledges have been kept?
    The Gaza fisherman who built his own reef - and was shot dead there by an Israeli gunboat

    The death of a Gaza fisherman

    He built his own reef, and was fatally shot there by an Israeli gunboat
    Saudi Arabia's airstrikes in Yemen are fuelling the Gulf's fire

    Saudi airstrikes are fuelling the Gulf's fire

    Arab intervention in Yemen risks entrenching Sunni-Shia divide and handing a victory to Isis, says Patrick Cockburn
    Zayn Malik's departure from One Direction shows the perils of fame in the age of social media

    The only direction Zayn could go

    We wince at the anguish of One Direction's fans, but Malik's departure shows the perils of fame in the age of social media
    Young Magician of the Year 2015: Meet the schoolgirl from Newcastle who has her heart set on being the competition's first female winner

    Spells like teen spirit

    A 16-year-old from Newcastle has set her heart on being the first female to win Young Magician of the Year. Jonathan Owen meets her
    Jonathan Anderson: If fashion is a cycle, this young man knows just how to ride it

    If fashion is a cycle, this young man knows just how to ride it

    British designer Jonathan Anderson is putting his stamp on venerable house Loewe
    Number plates scheme could provide a licence to offend in the land of the free

    Licence to offend in the land of the free

    Cash-strapped states have hit on a way of making money out of drivers that may be in collision with the First Amendment, says Rupert Cornwell
    From farm to fork: Meet the Cornish fishermen, vegetable-growers and butchers causing a stir in London's top restaurants

    From farm to fork in Cornwall

    One man is bringing together Cornwall's most accomplished growers, fishermen and butchers with London's best chefs to put the finest, freshest produce on the plates of some of the country’s best restaurants
    Robert Parker interview: The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes

    Robert Parker interview

    The world's top wine critic on tasting 10,000 bottles a year, absurd drinking notes and New World wannabes
    Don't believe the stereotype - or should you?

    Don't believe the stereotype - or should you?

    We exaggerate regional traits and turn them into jokes - and those on the receiving end are in on it too, says DJ Taylor
    How to make your own Easter egg: Willie Harcourt-Cooze shares his chocolate recipes

    How to make your own Easter egg

    Willie Harcourt-Cooze talks about his love affair with 'cacao' - and creates an Easter egg especially for The Independent on Sunday
    Bill Granger recipes: Our chef declares barbecue season open with his twist on a tradtional Easter Sunday lamb lunch

    Bill Granger's twist on Easter Sunday lunch

    Next weekend, our chef plans to return to his Aussie roots by firing up the barbecue
    Joe Marler: 'It's the way I think the game should be played'

    Joe Marler: 'It's the way I think the game should be played'

    The England prop relives the highs and lows of last Saturday's remarkable afternoon of Six Nations rugby
    Cricket World Cup 2015: Has the success of the tournament spelt the end for Test matches?

    Cricket World Cup 2015

    Has the success of the tournament spelt the end for Test matches?
    The Last Word: Justin Gatlin knows the price of everything, the value of nothing

    Michael Calvin's Last Word

    Justin Gatlin knows the price of everything, the value of nothing