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Categories:Investments

Fitch issues "misselling" warning on absolute return funds  

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Fitch has warned that absolute return funds pose an “increased risk of misselling” which may lead to “potential disappointment” for less sophisticated investors.

Fitch has warned that there is a wide range of funds that share the objective of positive total returns on a consistent basis over the medium to long term and no commonly agreed definition of what effectively constitutes an AR fund.

In Fitch’s view, this poses an “increased risk of misselling”, as absolute return funds gain traction in the retail market.

It adds “Furthermore, with greater emphasis on liquidity and downside protection, AR funds are not meant to fully capture market upside, which results in modest returns, leading to potential disappointment for less sophisticated or informed investors.”

Fitch Ratings has published a sector update on absolute return Ucits funds, recognising the need for investors to understand this fast growing, sophisticated segment of the market.

The European absolute return fund market, as defined by Lipper categories, has grown by 80 per cent since January 2009 to €140bn in assets under management in March 2011, thereby passing the peak of 2007. Fitch forecasts the sector will continue to grow, driven by sales rather than performance.

 

 

 

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Readers' comments (4)

  • Well thanks Fitch, what a bunch of boffins you are.Gosh, how clever.
    They obviously don't reaalise the competent adviser talks his client through the pros and cons of absolute return funds

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  • surley a properly followed fact find and attitude to risk conversation with adviser and client should mitigate this. do you think that they mean advisers dont understand these funds from an advice point of view? or is this just scaremongering for advisers? Fitch also seems to have the letter l missing from their name!

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  • unfortunately too many advisers do not record fact finds and attitutude to risk properly which leaves FOS to find in claimants favour far too often, leading to PI premium increase across the whole community

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  • A fund that makes money whatever ! If it sounds too good to be true.........

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