View more on these topics

Adviser Fund Index

The differing fortunes of two of the funds in the FE Adviser Fund Index during recent turmoil threaten to reignite debate over the absolute return sector.

During the August falls in equity markets, the BlackRock UK absolute return fund, co-managed by Mark Lyttleton and Nick Osborne, saw its performance drop by 3.33 per cent over the month while the Jupiter absolute return fund, managed by Philip Gibbs, rose by 3.19 per cent.

Using one month’s performance is not intended to provide an indication of the relative success or failings of these portfolios but as an illustrative guide to how much these products tend to diverge in how they behave, particularly during times of market stress.

It is now a well-rehearsed argument that the Investment Management Association absolute return sector is a broad church that houses a plethora of strategies. Currently, funds in the sector can differ from one another by risk profile, underlying asset class, strategy, fees and time horizon. In fact, apart from the intention, although not the obligation, to produce an above-zero return over a 12-month period, there are very few features these products are mandated to have in common.

Close Asset Management portfolio manager and fund research specialist James Davies says: “It can be difficult to keep track of where a manager has their long and short positions. It takes time and effort to research outside the fund factsheets, which are often out of date by the time they are released.”

Consultation is ongoing with the IMA about reforming the sector but one possibility seems to have been largely overlooked. If the only difference between these products and the rest of the market is the time horizon, as the current sector definition suggests, then perhaps investors should be wary of putting any money behind such short-term focus.

As an example, the BlackRock UK absolute alpha fund has returned 25.02 per cent against a 5.63 per cent return from the FTSE 100 over five years to September 13 but has underperformed the index over three years, with1.72 per cent versus 6.92 per cent.

As these statistics demonstrate, picking any particular time horizon is an arbitrary and frequently unhelpful way of evaluating performance. Fiddling with how the absolute return sector is split does little to mitigate this core problem.

Asset management companies should concentrate on what differentiates these products from those that were already available. For some, it is the downside protection offered to investors while for others it offers managers the opportunity to reflect negative positions on markets or sectors, increasing risk in order to provide higher returns.

In its current structure, the existence of the absolute return sector is antagonistic to industry efforts to combat retail investors’ progressively shrinking time horizons. It has also put huge pressure on managers.

Hargreaves Lansdown investment manager Ben Yearsley says: “These managers claim to be able to produce returns under any market conditions so they should be asked to prove it. Their benchmarks are usually cash-plus, so they have to beat cash in order to justify the fees.”
Perhaps the debate should focus less on ways to paper over the problems with the sector and more on what these funds intend to deliver over the long run.

Data supplied by Financial Express

Recommended

Time running out for employers on auto-enrolment

The 2008 Pensions Act will be something employers will never forget. The duties laid on over 1.3 million employers in the UK by that seminal act will soon assume a place high up in the priorities of employers, their advisers and the financial services industry. If left too late, it may also consume much of […]

Boughton quits Neptune for Mirabaud role

Neptune head of continental European sales Paul Boughton has quit the firm to join boutique Mirabaud Investment Management as joint sales and marketing director. Boughton joined Neptune in April 2008 from Matrix, where he was head of property sales. He previously worked for Legg Mason and Schroders. Last week, Money Marketing revealed that Skandia Investment […]

Unions have misunderstood report’s cost data, says Hutton

Lord Hutton says the trade unions have fundamentally misunderstood his report on public sector pensions, which they claim shows the schemes are affordable without reform. The report includes a table which shows that public sector pensions as a share of national income will fall from a peak of 1.9 per cent this year to 1.4 […]

2

FTSE 100 slumps 4.64% at close as US markets continue to fall

The FTSE 100 closed down 4.64 per cent today and US stock markets fell in morning trades following news of the US Federal Reserve’s economic stimulus. The Dow Jones Industrial Index was down 3.34 per cent to 10,754 by 11.40am while the S&P 500 was down 3 per cent to 1,131. The stimulus plan, called […]

Welcome to The Brunner Investment Trust PLC

Welcome to the latest update for The Brunner Investment Trust PLC from the trust’s portfolio manager Lucy Macdonald. Market Review Global equities ratcheted higher throughout February, buoyed by optimism about global growth and corporate earnings. All regions advanced, although Japan tended to lag many other markets. In sector terms, healthcare, information technology, consumer staples and […]

Newsletter

News and expert analysis straight to your inbox

Sign up

Comments

    Leave a comment

    Close

    Why register with Money Marketing ?

    Providing trusted insight for professional advisers.  Since 1985 Money Marketing has helped promote and analyse the financial adviser community in the UK and continues to be the trusted industry brand for independent insight and advice.

    News & analysis delivered directly to your inbox
    Register today to receive our range of news alerts including daily and weekly briefings

    Money Marketing Events
    Be the first to hear about our industry leading conferences, awards, roundtables and more.

    Research and insight
    Take part in and see the results of Money Marketing's flagship investigations into industry trends.

    Have your say
    Only registered users can post comments. As the voice of the adviser community, our content generates robust debate. Sign up today and make your voice heard.

    Register now

    Having problems?

    Contact us on +44 (0)20 7292 3712

    Lines are open Monday to Friday 9:00am -5.00pm

    Email: customerservices@moneymarketing.com