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60% of absolute return funds lose money in 2011

Over 60 per cent of absolute return funds failed to produce a positive return in 2011.

The biggest underperformer was the £514m GLG EM credit diversified alternative fund, which fell over 16 per cent. This was followed by the £60m Polar Capital UK absolute return fund, which fell by 13.9 per cent.

Among the underperformers was the flagship BlackRock UK absolute alpha fund. The fund, managed by Mark Lyttleton and Nick Osborne, fell by 6.85 per cent in the 12 months to December 30, 2011.

According to Morningstar, only 25 of the 65 funds in the IMA absolute return sector produced positive returns.

The top performer was the Old Mutual global equity absolute return fund, which returned 11.7 per cent.

Absolute return funds are designed to offer investors a positive return regardless of market conditions. The IMA launched the sector in May 2008 and it has quickly become one of the biggest sellers in the IFA market. Confusion around the definition of absolute return funds has led to an IMA review into the sector. The review is set to conclude in the first half of 2012.

Skerritt Consultants head of investments Andrew Merricks says: “It is disappointing and not a great advertisement for the sector. I do not think the sector needs to change too much and IFAs will simply have to work harder to find the most suitable strategies for them to use.”

10 biggest underperformers in the IMA absolute return sector from 31/12/10 to 30/12/2011

GLG EM Diversified Alternative DN      – 16.31 per cent             

Polar Capital UK Absolute Return 1 H GBP -13.88 per cent

CF Abs Ret Cau Multi-Asset A Inc -12.26 per cent

GLG Alpha Select Alternative DN GBP -11.37 per cent

L&G European Absolute Trust R Acc -11.11 per cent

SVM UK Absolute Alpha A -10.8 per cent

Aviva Investors UK Absolute Return SC A -9.65 per cent

Smith & Williamson Enterprise E -9.03 per cent

Baring Absolute Return Global Bond A Inc -8.61 per cent

CF TC Absolute Return A Acc -7.01 per cent


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There are 3 comments at the moment, we would love to hear your opinion too.

  1. Just proves that nothing changes in Financial Services, no investment linked product is without risk and why has the regulator allowed these funds to be marketed in this way. If any of these funds end up in compensation, surely it is the product providers that need to pay the compensation, and not the intermediary who believed in marketing spin, not me I must add.

  2. I’m with you Peter.
    These funds funds promised through the skills and experience of their managers to produce positive returns in any market conditions. 60% have failed to do so in adverse market conditions and what explanations have been forthcoming to date have been unconvincing to put it mildly. What sort of conversations are IFAs going to have with clients who were put into these funds?

    Personally my congratulations to Trustnet who first brought this to my attention-I have never recommended such a fund-and to MM for running this story. It is heartening to to have an example of the facts coming out even though they reflect badly on potential advertisers-a position not always taken by the national press

  3. Well, these funds ‘work’ in that they get in billions of £ of AUM, making money for the fund management groups in fees. They also make a good sales story for another churning opportunity for the dodgy brokers out there.

    Obviously when the eventual mis-selling scandal kicks in the PBI (‘Poor Bloody IFA’) who did not touch these funds with a bargepole will not be spared the additional levy. Now, where is that brochure on becoming a plumber??

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