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Two thirds of absolute return funds have lost money for investors

Paloma Kubiak
Written By:
Paloma Kubiak

Absolute return funds are failing to live up to their name, according to research by an investment platform.

With global markets battered by the coronavirus pandemic, investors will be turning to absolute return funds in a bid to diversify or recession-proof their portfolios.

This is because absolute return funds are meant to provide a positive return for investors regardless of market conditions.

However, benchmarks may differ between funds which can make it difficult for investors to navigate.

AJ Bell has used the returns on cash over the past decade (1.45%) as a standard, which reveals that just one absolute return fund has beaten cash every year during this period, while two thirds have delivered a loss.

Of the 38 funds with a 10-year track record, just the Janus Henderson UK Absolute Return has managed to beat cash returns and deliver a positive return in every year.

However, three funds have failed to beat 10-year cash returns: Insight Absolute Insight Currency, GAM Star Global Rates and Jupiter Absolute Return.

The latter two have delivered a loss over that time, of 8.1% and 4.1% respectively, while the Insight fund just sneaked in a gain – of 0.6%.

Three funds have delivered in all but one year, when they delivered a loss: Blackrock European Absolute Alpha, Veritas Global Real Return and Premier Multi-Asset Absolute Return.

Laura Suter, personal finance analyst at AJ Bell, said the returns of the sector over the past decade show it’s a potential minefield for investors to navigate, with a massive spread in returns (and losses) among the funds.

Suter said: “Looking at the 10-year figures investors aren’t going to be bowled over. Over the past decade cash has returned just 1.45% – far below the level of inflation. But even at that low bar three funds have failed to beat cash.

“The past year was the toughest of the past decade for the funds, with 26 funds of the 38 delivering a loss – that’s more than two-thirds of the sector that has lost money for investors, a lot of which will be over the past three months alone.”

She added that investors shouldn’t just focus on the funds that have made a positive return over certain periods.

“For example, the Argonaut Absolute Return has delivered a 40% return for investors over the past year, but the previous year it handed investors a loss of 15.5%, while in 2016/17 it delivered a 19% loss. This isn’t a fund for investors who want a stable return that minimises loss of capital.

“The data highlights how much investors need to dig into the sector to see which fund works for them. The difficulty when comparing absolute return funds is that they don’t have a consistent benchmark between them, so while one might target Bank of England base rate plus 3% over a rolling five year period, another might just aim to not lose money every 12 months.

“This means investors need to first assess whether they are comfortable with the stated benchmark and then whether they are happy with the past returns of the fund, and particularly how it has navigated down markets,” she said.