But you can’t break the link between risk and reward. Remove one risk with the aim of delivering absolute returns and other risks are added to the mix.
These new risks are harder to quantify and often harder to see. As tempting as it might be to flock to absolute return funds when markets are diving, long-term investors have no need to stray from traditional products.”
Adrian Lowcock, head of investing, Axa Wealth
“Absolute return funds were initially treated with scepticism by investors as many of the first launches were confusing. They had complex and expensive charging structures and new benchmarks that proved unpopular to an audience which expected higher returns for a standard 1.5 per cent annual management charge.
However, the ‘promise’ of consistent returns following the financial crisis has been popular across the industry and these funds have a vital role to play. Their ability to provide diversification and profit from falling and rising markets is an important tool for investors looking to build a diversified portfolio. There still remain challenges with the sector – many funds are not comparable with each other as they have different objectives, strategies and invest in different underlying assets.”
Jeremy Beckwith, director of manager research UK, Morningstar
“When markets suffer a correction and investors lose money, funds that seek not to lose money come into focus and the fund flow trends of recent months bear this out.
Equally, these same funds tend to lose investor interest when markets return upwards, as lower beta becomes less attractive.
The Targeted Absolute Return sector encompasses a wide range of funds that adopt widely different strategies. And before investing, investors need to do their homework to understand how the manager is seeking to generate an absolute return profile and the investment strategy s/he is adopting.”
TOP FIVE FUNDS OVER THREE YEARS
City Financial Absolute Equity
Manager: David Crawford
Assets under management: £128m
Launch date: March 2008
Ongoing charges:* 0.95%
Performance:** 113.5%
FP Argonaut Absolute Return
Managers: Barry Norris and Greg Bennett
Assets under management: £165m
Launch date: February 2009
Ongoing charges:* 0.95%
Performance:** 77.5%
CF Odey Absolute Return
Managers: James Hanbury and Jamie Grimston
Assets under management: £951m
Launch date: May 2009
Ongoing charges:* 0.92%
Performance:** 72%
Henderson European Absolute Return
Manager: John Bennett
Assets under management: £132m
Launch date: January 2009
Ongoing charges:* 1.70%
Performance:** 42.3%
7IM Unconstrained
Manager: Alex Scott
Assets under management: £45m
Launch date: January 2012
Ongoing charges:* 1.53%
Performance:** 33%
**Three-year performance to September 10 2015
* Ongoing charges apply to the clean retail share class
