With returns of 29.24 per cent, it is the fifth-best performing fund in the IMA Absolute Return sector since it was launched. Iain Stewart’s Newton Real Return fund and the Standard Life Global Absolute Return Strategies fund were among those that marginally outperformed it.
The much lower profile and smaller UBS US Growth and AXA Ethical Distribution funds have also significantly outperformed their sector average, albeit with slightly more volatility.
Performance of funds vs sectors over 3-yrs
| Fund |
Sector |
Returns relative to sector (%) |
| L&G Diversified Absolute Return |
Absolute Return |
+15.93 |
| AXA Ethical Distribution |
Cautious Managed |
+20.85 |
| UBS US Growth |
North America |
+28.87 |
| L&G UK Special Situations |
UK All Companies |
-37.25 |
Source: FE Analytics
L&G Diversified Absolute Return is a top-quartile performer over a one-year period as well, with returns of 3.08 per cent. The average fund in the sector has returned 0.33 per cent in this time.
North’s vehicle began well in its early stages, which was reflected in mass inflows from investors. In late 2008 and early 2009, it preserved capital relatively well in highly volatile conditions, and in the second half of 2009 and first quartile of 2010 it took advantage of the market rebound and rewarded its investors with steep but steady returns.
However, this all changed in April 2010. A substantial position in BP sent returns crashing down in the aftermath of the Gulf of Mexico oil spill. In the month that followed the spill, the L&G Diversified Absolute Return fund lost more than the FTSE All Share.
Performance of fund vs sector and index over 3-yrs
Source: FE Analytics
A high level of volatility persisted for some months, but in the last year returns have smoothed out significantly. In the early stages of 2011 the fund took a far more defensive position, which it benefited from during the summer’s volatility. According to FE Analytics data, at the end of March the fund had 40 per cent of its assets invested in cash deposits.
Its ability to use derivatives has also held it in good stead in recent months.
With an FE Risk Score of 48, it is still deemed as one of the riskiest Absolute Return funds on the market; however, it should be noted that this score has come down in recent months.
L&G UK Special Situations fund is the only third-anniversary fund that has underperformed its sector since inception. According to FE Analytics data, it has returned just 6.54 per cent in the last three years, underperforming its UK All Companies sector and FTSE All Share benchmark by 37.25 and 37.42 per cent respectively.