Absolute return? Absolute nonsense!

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When I look at recent fund launches, I can see that there are a few key themes which have proved most popular of late.

1. Equity Income funds

While some of these are still UK-based, there are an increasing number which invest in more global regions, which certainly makes a more interesting opportunity, but the risk could catch some out.

2. China funds

I can’t even bring myself to make a comment on this theme, given the focus it gets. I will just say that there are too many funds and I have seen some worryingly high allocations.

3. Absolute return funds

Clearly you are not going to fall off your chair when I mention that a number of these funds may not be fit for purpose, as it is a story well told. However, there are some stats emerging now that (I feel) need revisiting. (Gee blog continues below)

 

There are currently 72 funds in the Absolute Return sector, 10% of which have been launched in the last twelve months. Of all the funds available in the sector, 50% have delivered a negative return in the last twelve months and the average is -0.03%. So clearly the investor isn’t winning.

While there are a very limited number of absolute return funds that are worth considering (and we are talking about approximately 5% of the sector) fund managers still think it is fine to keep launching new funds. This makes the sector ripe for consolidation and who benefits from that? Let’s just say it won’t be the investor.

But the conveyor belt shows no signs of stopping new launches, so if fund managers have to learn the hard way, by losing money themselves and not gaining any funds under management, so be it.
 
So can we stop supporting them? Please?

 

Philippa Gee is managing director of Philippa Gee Wealth Management.

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Readers' comments (3)

  • I thought funds managers learnt when you stopped investing your moneis with them? We recently had a rep at Neptune beg for a meeting when we removed their Global Equity Fund from our portfolios.
    You can't stop fund launches but you can vote with your wallet and your clients!

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  • There's only one thing I want to say about Absolute Funds - they absolutely don't do what they're supposed to do!

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  • I don't get this "witch hunt" on this fund group - and I am not going to try and defend every fund in this class.

    But let us look at two points. Firstly, todate: Mixed Investments 0% -35% 1 year performance (in answer to Phillipa Gees 1 year remark) = 2.6% with max loss of 4% appx; mixed investment = 0.7% with a max loss of 8%appx; mixed investment -0.9% with max loss of 12% appx and as for the ARF sector we have -1.1% with an appx 3% max loss.

    Now the 2nd point is when markets are positive, ARF's are not expected to match the market funds; but when over a cycle of of up and down ARF's are to produce better than cash by 3-5% or whatever; now this year according to the various market sectors was a minmally positive period and therefore ARF performance would be expected to be behind by a bit which puts it into negative teritory.

    Finally if we use risk adjusted returns the ARF show wonerful value and we are not using the best of breed, we are using average ARF.

    So please can someone explain this professional obsession with dismantling a valuable option, I have used good ARF's in my portfolios to produce the same returns as market funds with consisterntly lower volatility - something which is so necessary in these volatile and ominous times.

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