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Fear of unknown unknowns over absolute return

Brewin Dolphin divisional director Stephen Ford has raised concerns about the ability of absolute return funds to meet client expectations.

At the PIMS conference on board the Arcadia last week, Ford said he would never run an absolute-return fund and expressed concern about stochastic modelling techniques.

He said: “Where are the 30-year absolute return funds? Please let me know. I have a problem with absolute return funds, I would never run one. Am I going to sign up to del- iver absolute returns despite all the unknown unknowns? In terms of expectation management, that is an area that will cause problems.”

“I get concerned when I hear terms like stochastic modelling. I am a simple soul – Lehman Brothers spent a lot more on their IT than me and so did Merrill’s and UBS.

“The fact is that we cannot predict the future and we need to be more honest about this. Saying that it is an event that should only happen every 10,000 years does not change the fact that you have lost 40 per cent of your cash.”

Ford said that asset allocation will continue to be the main driver of returns but more rational pricing and less easy credit could see stock-picking skills return.

Ford also told delegates on board for the conference that IFAs should capitalise on the recent failings of bigger institutions.

He said: “The reputations of, say, UBS, Citigroup and Morgan Stanley have taken a knock. That is a fabulous opportunity for people who have had to compete against bigger-branded outfits over the last decade.”

Taxbriefs chairman Danby Bloch told delegates that tax planning gave advisers the opportunity to get positive absolute returns from certain aspects of clients’ lives, compared with more uncertain returns on investments.

He said: “Tax planning is, in conjunction with investment planning, one of the USPs of IFAs because a lot of cli- ents think that they can pick their own funds but the tax aspect of financial planning is something they will not get to grips with.”

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