Of the 161 funds listed in the indices, the BlackRock fund scores 18 mentions. It appears five times in the Aggressive index, six times in the Balanced index and seven times in the Cautious index.
It also comes top in terms of weighting in the Cautious and Balanced indices. In the Aggressive AFI, the BlackRock fund comes fourth while the M&G global basics fund has the highest weighting.
The AFI panellists are not alone in being attracted to the BlackRock UK absolute alpha fund, however. In the year to April 2008, net inflows were about £700m and in the past few weeks the fund size has exceeded £1bn.
Launched in April 2005, BlackRock UK absolute alpha is managed by Mark Lyttleton and Nick Osborne. Its structure allows it to benefit from falling as well as rising markets, an ability of particular interest to investors in the current climate.
Over three years to June 2, 2008, the fund returned 42.72 per cent, according to Morningstar. Over one year, it produced 12.68 per cent compared with an average of 7.91 per cent from the Investment Management Association’s absolute return sector, ranking it top out of four funds in the sector.
Dennehy Weller managing director Brian Dennehy holds BlackRock UK absolute alpha in his Cautious AFI portfolio. However, he says it is important to invest in a range of absolute return funds and he also holds the JPM cautious total return and Newton absolute intrepid funds.
Dennehy says: “Each achieve their returns in quite different ways but overall they provide low volatility returns through the cycle. It is very important to have a spread of such funds or at least the small number that have been successful. We do not yet have a long track record for such funds and there are hidden risks and also risks that are not yet well understood.”
Killik & Co director of fund research Mick Gilligan has embraced the fund within all three of his AFI portfolios. He bought it at launch in 2005 and uses it as a bond or hedge fund alternative.
Gilligan says the fund stands out among the others. He says: “It is pretty unusual in that most of other absolute return funds were in fixed income. This was different.”
However, he concedes that buying the fund was a gamble. He says: “Mark Lyttleton did not have a track record of shorting stocks but he has proved to be very good at it.”