Advisers question Threadneedle absolute return fund's performance target
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Advisers have questioned the 10-15 per cent performance target and high fees on Threadneedle’s new absolute return commodities fund.
The Threadneedle (Lux) Absolute Commodities fund, which is due to launch in the summer, will have a market-neutral strategy and will be run by fund manager Nicolas Robin.
The fund has an annual management charge of 1.75 per cent for the retail share class and a performance fee of 15 per cent for returns over one month US$ Libor, according to pre-marketing material seen by Fundweb.co.uk sister title Money Marketing.
Rowan Dartington head of collective research Tim Cockerill says the performance target is high for a market-neutral strategy that takes out the effect of market movements. He says: “I am surprised this is being marketed as an absolute return fund, as the anticipated return appears to be quite high.”
Chelsea Financial Services managing director Darius McDermott says: “The base fee is too high when you have also got a performance fee over cash. The performance target is a bit rich when you think how low US$ Libor is and how much Threadneedle would be paid in performance fee if it achieves these returns.”
Bestinvest senior research analyst Ben Seager-Scott says: “The fund has a very punchy performance target. Commodities are very volatile which means they are high risk, so if a manager gets it right, investors can make significant returns, but equally significant losses.”
Lowes Financial Management investment manager Melvyn Bell agrees that the performance target is “very punchy”.
He says: “You can get that money, but you can also lose that money if they make wrong calls.”
A spokeswoman for Threadneedle says the details of the fund are not yet finalised.
She adds: “Since its launch two years ago the long only Threadneedle (Lux) Enhanced Commodities fund has outperformed the DJUBS index by over 18 per cent. We have had high demand for this fund and we know there is strong appetite among investors for an absolute return vehicle to take advantage of the team’s strategies and expertise.”
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Readers' comments (1)
Anonymous | 19 Jul 2012 9:58 am
No performance fee should be payable until the stated performance target has been exceeded - not Libor which is irrelevant. Too many fund managers seem to expect a free lunch from investors and set performance targets at levels to entice investors but which often bear no relation to the real world and the added value they are genuinely able to provide. Performance fees should not be a given, They should only be earned after investors' expectations have been met, in this case, 10% to 15% pa - if the manager is unwilling to put its money where its mouth is, what does that tell us about the manager or the performance target?
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