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Underperforming absolute return funds suffer exodus

Investors are voting with their feet “in droves” to ditch underperfoming absolute return funds.

The past 11 months saw consistent outflows, as investors pulled £5.4bn from the funds.

Most of the absolute return funds with the largest outflows over the past year have failed to beat inflation over the past five years.

Analysis by AJ Bell shows that of the 10 sector’s funds with the highest outflows, eight have failed to meet their own performance targets. Out of the remaining two, one has no clear benchmark and the other one was missing five-year performance data.

AJ Bell personal finance analyst Laura Suter says: “Of the nine that do have a five-year track record, five have failed to hand investors a return above inflation over that period.”

Graham Bentley: Absolute return has had its day

The sector’s original giant – Standard Life Aberdeen’s flagship fund Standard Life Investments Global Absolute Return Strategies fund topped the sector’s table of funds with the largest outflows with investors pulling almost £10bn over the past year and more than £18.5bn in the past three years.

Suter says: “The fund has seen a period of underperformance, falling far short of its target of cash returns plus 5 per cent a year, over a rolling three year period.

“Over the past five years it has returned just 5.81 per cent, less than inflation during that time. However, the fund has rebounded in the past year, returning 4.9 per cent, ahead of average inflation of 2 per cent and the 1 per cent average return of the sector.”

The sector’s fund which saw the second highest level of redemptions over the last year was the Merian Global Equity Absolute Return with outflows worth of £4bn.

Suter pointed out that while the fund had a loss of 8 per cent during the period, over the longer-term it has delivered 10.5 per cent total return to investors – “ahead of inflation and the sector average.”

Name Outflows over 1 year (£) 1yr returns (%) 5yr return (%) Beaten performance target?
Standard Life Investments Global Absolute Return Strategy   -£9.7bn

4.88%

5.81%

No

Merian Global Equity Absolute Return   -£4.0bn

-7.86%

10.54%

NA*

BNY Mellon Real Return   -£2.9bn

10.06%

19.29%

No

GAM MultiBond Absolute Return Bond Plus   -£1.4bn

1.17%

-0.42%

No

Kames Absolute Return Bond   -£1.4bn

0.68%

4.75%

No

BNY Mellon Absolute Return Equity   -£1.2bn

-4.68%

2.42%

No

GAM MultiBond Absolute Return Bond   -£1.0bn

0.82%

-1.11%

No

Invesco Global Targeted Returns   -£925m

-0.85%

10.48%

No

Aviva Investors Multi-Strategy Targeted Return   -£719m

0.74%

8.78%

No

Aviva Investors Multi-Strategy Targeted Income   -£679m

4.90%

NA

NA

Sector average

0.96%

9.48%

UK inflation

1.98%

7.68%

Source: Morningstar/FE/AJ Bell. Data accurate to 30/06/19. Morningstar flow figures are an estimate. Inflation measure based on CPI.*Fund has no clear benchmark

The list’s worst performer GAM MultiBond Absolute Return Bond, which has delivered a loss of 1.1 per cent over the past five years, is one of the GAM funds currently suspended and liquidated.

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