Advisers have called for a split in the absolute returns sector, saying differing strategies are hindering a meaningful comparison of funds.
AWD Chase de Vere senior manager Jason Walker says distinguishing between market-neutral and non-market-neutral absolute return funds and geographical variations could be a good starting point.
He says: “You could split up the funds geographically according to where they invest. Market-neutral funds use different strategies to take out volatility in the fund performance, such as pair trading. Others that do not pair trade and do not have that neutral view will take a more aggressive strategy. It is not fair to compare Octopus absolute return to BlackRock, for example, as they have completely different objectives and will be going about it in very different ways.”
Alan Steel Asset Management’s Alan Adam says: “With absolute return funds and even cautious managed funds, there can be a really wide spectrum in how the funds are run.
“One could be ultra defensive with high capital protection limiting the upside while others are taking quite high alpha to get a per cent or two above the bank base rates. You are not comparing similar investments.”
Absolute return is the only IMA sector that is performance-based – most sectors are based on assets.
An IMA spokeswoman says: “We provide a warning note to investors and advisers that performance comparisons are inappropriate due to the diverse nature of the objectives of the funds in this sector, including differing benchmarks, risk characteristics and timeframes for delivering performance. The IMA keeps its sectors under regular review.”