Jim Armitage: Absolutely the right time to crack down on funds

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The Independent Online

Outlook If I were Lord Mayor, and keeper of the wooden horse, among the first having those weights clipped to their ankles would be the peddlers of that fictional financial product, the absolute return fund.

These cosy-sounding investments are sold to the public on the promise of making them money whatever the financial weather.

Weasel words mean that is not actually a promise at all. Because, of course, it can't be. A fund that always makes money is an impossibility. But the impression given has proved an effective sales tool for funds pitching to nervous pensioners in a volatile world.

When I last looked at the sector in 2011, 39 of the 66 absolute return funds monitored by Morningstar were sitting on losses. "Absolute Pants" ran the article's headline. They have done better since, but then so would a toddler armed with a pin and the financial pages.

In the volatile times when absolute return funds are supposed to excel, the toddler would probably be winning. When the markets went haywire as the quantitative-easing tapering debate erupted in May and June this year, Morningstar figures show most absolute return funds went underwater just like everything else.

The Investment Management Association, whose budget is met by the very funds it's supposed to be watching over, earlier this year made a few gestures at removing some of the failsafe impressions absolute return funds have in their marketing literature. But it didn't go far enough. Being a marketing arm of the fund-management industry, you wouldn't expect it to.

But now, a proper regulator, the Financial Conduct Authority, has absolute returns in its sights.

The chief executive Martin Wheatley is gearing up to launch a long-overdue crackdown.

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