“I would argue that there are a number of funds that can produce attractive risk-adjusted returns. Investors need to remember that these funds are designed to grind out a return greater than cash and/or inflation. With bonds and equity valuations looking expensive, this is exactly the time when these strategies cannot be ignored to provide added diversification and ballast in cautious and balanced mandates.
“There are now more than 100 funds in the sector, but the disparity between funds makes it somewhat of an enigma. There are extreme differences in risk/reward profile. With five-year volatility ranging from 1-12 and five-year performance ranging from -7 per cent to 124 per cent, they require more research and are more complex than long-only strategies. It is important to look at each fund on its own merits, and have a good understanding where the funds will invest and what strategies will be employed.”
Absolute return funds in numbers
£108bn
Assets under management in the IA Targeted Absolute Return sector
116
Number of funds in the IA Targeted Absolute Return sector
24
Number of times absolute return funds were mentioned in the FCA’s asset management market study final report
£4bn
Net outflows from the sector’s biggest fund: Standard Life Investment’s Gars strategy
6
Times the Targeted Absolute Return sector was the bestselling peer group in the past 12 months
70
Size of the multi-asset team behind the behemoth £23bn Gars strategy
Absolute return funds: Performance
Top-10 funds by Sortino ratio over three years to September 12 2017
| Fund | Sortino ratio | Volatility (%) |
| Schroder UK Dynamic Absolute Return | 0.64 | 5.7 |
| Smith & Williamson Defensive Growth | 0.64 | 2.5 |
| JPM Global Macro Opportunities | 0.64 | 7.9 |
| Man GLG Alpha Select Alternative | 0.59 | 4.6 |
| VT iFunds Absolute Return Orange | 0.51 | 9.3 |
| Gam Star (Lux) Convertible Alpha | 0.51 | 8.8 |
| Old Mutual Global Equity Absolute Return | 0.49 | 4.4 |
| Schroder ISF Asian Bond Absolute Return | 0.49 | 9.8 |
| IFSL Brooks Macdonald Defensive Capital | 0.47 | 4.3 |
| City Financial Absolute Equity | 0.47 | 13.4 |
| Source: FE Analytics |
Top-10 funds by returns over three years to September 12 2017
| Fund | Three-year return (%) | Downside risk (%) |
| City Financial Absolute Equity | 10.3 | 14.5 |
| JPM Global Macro Opportunities | 8 | 7.1 |
| Schroder ISF Asian Bond Absolute Return | 7.9 | 9.1 |
| Schroder UK Dynamic Absolute Return | 7.8 | 6.7 |
| VT iFunds Absolute Return Orange | 7.6 | 8 |
| Gam Star (Lux) Convertible Alpha | 7.6 | 8 |
| Natixis H2O MultiReturns | 6.7 | 15.7 |
| RWC Core Plus | 6.7 | 7.8 |
| Man GLG Alpha Select Alternative | 6.6 | 5.2 |
| Liontrust GF European Strategic Equity | 6.2 | 6.8 |
| Source: FE Analytics |
