FSA concern at absolute return fund labelling

Fund firms say the FSA is privately advising them against using the term “absolute return” when launching new funds as it creates the impression that growth is guaranteed.

OPM Fund Management chief investment officer Tony Yousefian was planning to launch a fund using the absolute return label, but says the FSA expressed concern over the term and he has opted for diversified target return instead.

Another big fund group has told Money Marketing that FSA concerns about the absolute return label have led it to consider renaming one of its funds.

Yousefian says: “The FSA has told people to steer clear of words like absolute return. When submissions are being made to launch a fund, that message comes back quite strongly.

“The term really is quite misleading and it needs to be qualified. I totally agree with the FSA that these things need to be much clearer and more defined.”

In May 2008, the Investment Management Association launched an absolute return sector which now contains 50 products. Morningstar data shows that six funds have lost money over the past year.

Absolute return funds have proved popular with retail investors since the financial crisis. The most popular are the Standard Life global absolute return strategies fund, now running £6.5bn of assets, and BlackRock’s £2.1bn UK absolute alpha fund. Most recent IMA statistics show gross retail absolute return fund sales of £407m for last November.

An IMA review of the absolute return sector, scheduled for April, will consider the name of the sector and possible sub-categorisations. In August, the IMA said funds not stating the aim to deliver an absolute return over a 12 month time frame in their fund literature could be kicked out of the sector.

Skerritt Consultants investment director Andy Merricks says: “The term absolute return has been a bit misleading when seen in context with some of the funds that go under that name. Absolute rubbish may have been more appropriate.”

The FSA declined to comment on the issue.