Threadneedle head of UK retail sales Gary Collins says that as the number of absolute return funds coming to the market continues to rise, investors require a better understanding of the sector.
He says that over the last 12 months there have been 26 new absolute return products launched in the UK market, resulting in an increase in the number of investment approaches to this type of fund, making classification and performance comparisons even more difficult for investors.
Collins says: “Whilst the IMA recently introduced an absolute return fund sector, the diversity of approaches makes fund comparisons extremely hard for both investors and advisers to select funds.
“However, there are many benefits in terms of diversification potential compared to other sectors. Allocating a reasonable weighting to absolute return funds can help lower overall portfolio risk and combining a variety of different absolute return strategies, which have limited correlation to each other and draw alpha from different underlying markets, could potentially lower the volatility of the absolute return exposure and the exposure of the portfolio as a whole.”
Collins adds: “The number of new funds entering the market this year is likely to continue to rapidly grow, offering investors even greater choice. However, more needs to be done to ensure the end investor understands the role absolute return funds can play in a diversified portfolio – in both good and bad market conditions. Much of this help will rely on the industry getting to grips with classifying the funds in a way that moves away from a one type fits all approach.”