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S&P highlights shortcomings of absolute return funds

Standard & Poor’s Fund Services has cast a shadow on the performance of absolute return vehicles by claiming that none of them met their own investment objectives in 2006.

Most of the funds suffered as a result of difficult year in fixed income, according to the firm, with most of them also failing to reach their cash benchmark, let beat it as promised.

S&P fund analyst Kate Hollis says many of the funds were poorly positioned to deal with the fixed income fallback while others were caught sleeping by being overly exposed to emerging market debt at the time of the correction in Q2 2006.

The ratings provider says the poor performance is highlighted by the fact that none of the 21 absolute return funds in the arena was given AAA rating, while only Mellon evolution global alpha was given AA.

Hollis says: “Looking ahead a few absolute return funds are now on course to achieve their targets by year-end and most are now outperforming cash. A couple were showing losses after fees and a couple were flat by the end March.”

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