Equity fund managers have slammed the absolute return format, saying despite the promises of providers investors are “dreaming” if they think the funds can guarantee growth above cash levels.
Absolute return has come under further fire, after several of the products have failed to deliver positive performance regardless of market conditions, at a debate hosted by Fidelity FundsNetwork.
Henderson head of equities Bill McQuaker said some of the funds have promised to deliver 10 per cent per annum. He says: “If people are looking for ten they are definitely looking for more than the risk-free level of return. If you take risk then it might go well and it might go badly and anyone who looks to absolute returns to deliver risk-free returns is dreaming.”
Investec Asset Management portfolio manager Max King said: “People who expected an absolute return in 2008 – some of them lost their trousers.”
The criticisms come after experts have warned the name ‘absolute return’ could be misleading investors.
A raft of the funds – which derive from the hedge fund space and often use sophisticated investment techniques like ‘short-selling’ stocks to target gains when markets fall – have been launched in the past five years.
The first major product to launch to UK retail investors was the £2bn BlackRock UK absolute alpha fund managed by Mark Lyttleton, who spoke out at the debate to defend his fund.
He said: “You are seeing at the moment it is actually quite hard to deliver a decent absolute return. The funds operate in different ways. Some are just punting at market levels as much as they are individual stocks and that will do the good name of the sector down. The risk is there is one or two low profile, or high profile, blow-ups.”
But Lyttleton said “investors are beginning to work it out” and only buy the funds that work, adding that the use of the name ‘absolute return’ does not matter. He adds: “Investors have to not view the sector as a homogeneous group. It is very easy to set these things up but actually to manage the risk and manage the volatility is very hard.”