The CF KB Endeavour Absolute Return Fund and CF KB Endeavour Balanced Total Return Fund aim for growth using a cash benchmark but they have different risk profiles. The absolute return fund aims to provide returns of 2 per cent above the one-month Libor with the volatility of a short-to-medium term gilt. The total return fund aims to provide returns of 4 per cent above Libor with the volatility of a medium-to-long-term gilt. Both funds will combine bonds and equities with alternative assets such as real estate, commodities, hedge funds and private equity.
The funds are based on the offshore KB Elite Absolute Return and KB Elite Balanced Total Return funds launched in August 2005. Kleinwort Benson believes investors are looking for funds that aim to preserve capital and produce absolute returns rather than funds that are deemed to perform well – even if they lose money – by beating a benchmark index.
The company also argues that equity markets have become increasingly correlated as a result of globalisation, so traditional means of diversification through region and sector fall short and still expose investors to equity risk. Bonds may a less volatile asset class, but the risk is that returns may not be high enough to deal with the impact of inflation on capital
Kleinwort Benson believes multi-asset portfolios that incorporate traditional and alternative asset classes provide a better degree of diversification. Consequently, the absolute return fund is split across five asset classes, while the total return fund has an additional weighting in private equity to reflect its more aggressive risk and return profile.
Multi-asset portfolios have become widespread as a result of the Ucits III rules. which allow mixed asset classes within a single fund. However, it is a moot point as to how much diversification they provide because there has recently been greater correlation between these asset classes. This fund is aiming at the top end of the market with a £100,000 minimum investment so it may not compete directly with similar fund. However, this means the fund will be beyond the reach of interested investors with more modest amounts.