BlackRock managing director Alex Hoctor-Duncan is warning of potential “roadkill” in the absolute return sector due to the number of funds coming to market.
Hoctor-Duncan says investors and advisers must be cautious when selecting funds and need to understand that there are various ways of achieving absolute returns.
He says: “I think advisers have to take a longer look at the likes of Sharpe ratios and information ratios as there are so many different products in the space, ranging from total return to 130/30 strategies. Take Libor-plus funds, for example. They cannot beat Libor without taking a level of risk.”
Hoctor-Duncan says many funds still have to prove that they can perform in differing market conditions.
He says: “We have to see how these funds operate over the long term in differing markets – something our BlackRock UK absolute alpha fund has done. That is why so many have started to invest in it as it has delivered in differing conditions.”