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Fitch: Absolute return and flexible funds failed to perform in turmoil

Some European absolute return and multi-asset flexible funds failed their “clearest test since the Lehman fallout” during the recent market turmoil, according to Fitch Ratings.

Research carried out by the agency’s fund and asset manager rating group shows European absolute return and flexible funds lost 2.5 per cent and 7.6 per cent respectively over the first three weeks of August, when concerns over the eurozone debt crisis and global growth sparked volatility in the markets.

Absolute return funds attempt to achieve positive returns in all market conditions, while flexible products strive to deliver and higher returns on the upside and lower returns on the downside when compared with a balanced bond and equity allocation. Fitch says its findings suggest the funds are not always successful in achieving these aims.

“The market volatility seen in August has increased fund return dispersion, particularly on the downside. Compensating for 2011 losses has become a major challenge for many AR and flexible funds, which must adhere to strict risk budgets,” Fitch says.

The research claims that some managers were “caught by surprise” when the sell-off began and certain protection mechanisms, including macro or tail risk hedges, were shown to be “ineffective” in some cases.

In addition, Fitch says the worst performing funds are at risk of being driven out of the market, owing toå the fact investors tend to make their decisions based on performance.


Mark Dampier’s Fund Focus

The downgrading of global growth expectations rather than the down-grading of US debt by S&P seems to have been the catalyst for recent stockmarket falls. A lack of US and European political leadership did not help and while I hope the market gyrations do not continue at the level we have seen, I cannot pretend […]

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Former Ignis sales and marketing director Jonathan Polin has been appointed group chief executive of Ashcourt Rowan. Polin replaces Mark Cheshire, who is stepping down with immediate effect as part of a reshuffle that will see interim chairman Kenneth “Buzz” West promoted to non-executive chairman. Polin will join the firm on September 2. Stephen Haines […]

Fixed expression

With serious questions hanging over the economic health of the US and a number of eurozone countries, one thing is certain we live in uncertain times. What is clear is that in an environment of excessive debt levels and falling asset prices, it has for some time looked increasingly difficult for world leaders to navigate […]


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