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Fund Focus: IMA reforms of absolute return funds should provide clarity

In recent years, the absolute returns sector has come in for sustained criticism from investors and intermediaries over the way the funds have been marketed.

The description of the sector had come in for criticism, in particular, due to the possibility that investors could confuse the investment aims of funds within the sector with a factual statement of what they would deliver.

In February, the Investment Management Association completed its review of the absolute returns sector.

The result of the review was something of an anti-climax, with the IMA concluding that the sector is to be renamed as the ‘Targeted Absolute Return’ sector to help avoid any potential confusion for investors.

The IMA also restricted the timescale over which funds must aim and produce positive returns to three years and has promised to publish data to show the consistency with which funds have produced positive returns over a rolling one year period.

IMA chief executive Daniel Godfrey said: “One key purpose of the Absolute Return Sector review was to make sure that consumers do not inadvertently perceive there to be some implicit guarantee of positive returns due to the name of the sector. Adding the ‘targeted’ description to the sector name fulfils this purpose.

“A second key purpose was to ensure that consumers can simply and easily find out what individual funds are setting out to do.

“We will also keep a close eye on performance and, should it become necessary, set performance criteria, which could lead to a fund’s expulsion from the sector on performance grounds.”

Another historic criticism of the sector is that funds within it are so diverse it is impossible to come up with a meaningful comparison between funds.

Godfrey said: “We will continue to keep a close eye on the sector to see whether sub-groups could be created to further refine the value of our sector data for users.”
For now, most of the 48 of funds within the sector with three year performance figures do not have much to fear from the IMA cracking down on funds being able to deliver on their promises.

The sector average has been in positive territory for all but five months of the last three years and only 10 funds are showing negative returns over this period.

Over one year the picture for the sector is better. Of the 69 funds with one year performance figures, there are only 10 in negative territory.

IMA Abs Returns performance.3 years.May 2013

Absolute Returns Sector best and worst funds over 3 years

 Top 5 funds

Name Return

CF Odey UK Absolute Return

79.25

Cazenove Absolute UK Dynamic

33.2

Old Mutual Global Equity Absolute Return

23.24

Stan Life Investments Global Absolute Return Strategies

20.22

L&G UK Absolute

18.74

Bottom 5 funds

Source: FE Trustnet Figures are for total returns for three years to 26/04/13
Name Return

Polar Capital UK Absolute Return

-15.42

GLG Emerging Markets Diversified Alternative

-14.6

GLG Alpha Select Alternative

-11.54

BlackRock UK Absolute Alpha

-8.81

Aviva Investors UK Absolute Return

-7.56

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