This year has been markedly different to 2013 and 2012, with sceptics increasingly vocal as to the chances for equity re-ratings. They have been mostly vindicated by a market that has been volatile but largely flat.
Performance of indices in 2014
Source: FE Analytics
Perhaps for this reason, funds in the IMA Targeted Absolute Return sector – which aim to make a positive return regardless of broader market conditions – have seen positive inflows for the past 12 months.
Here, Square Mile reveals which funds in the sector its rates the most, aside from the behemoth Standard Life Global Absolute Return Strategies fund, while FE Trustnet takes a look under the bonnet.
Jupiter Strategic Reserve
This £83m fund is co-managed by Lee Manzi and Miles Geldard and is one of the newest in the sector having launched in April 2012.
Square Mile says the managers have a cautious approach aimed at protecting investors’ money and gives the fund an ‘AA’ rating.
“The manager has an impressive record of maintaining investors' capital over a number of market crises in the last 15 years. This is testament to his cautious approach and the well-crafted portfolio construction. Investors should be aware that this is a fund which may significantly lag other funds during periods of market strength,” Square Mile said.
The return profile of this fund will not be high but the intention is to provide broadly steady returns for investors.
Since launch, the fund has returned 7.22 per cent, more than three percentage points less than the average fund in the sector.
Performance of fund and sector since April 2012
Source: FE Analytics
The fund has 20 per cent in cash with a further 8 percent in UK government bonds and another 40 per cent in global fixed interest across a wide range of currencies. It has just 9 per cent in equities and 6 per cent in alternatives.
The fund is has an OCF of 0.86 per cent.
Kames UK Equity Absolute Return
Another new relatively fund in the sector, this £346m fund has been managed by David Pringle and David Griffiths since its launch in February 2010.
Square Mile says the fund has a complex portfolio designed for steady returns and gives the fund an ‘A’ rating.
“There are a number of things that can go wrong with such an approach but we believe that Kames has structured the fund in such a manner to minimise these. Assuming the investment hedges work as expected, this leaves the main risk with the managers and the success of the fund rests with the accuracy of their calls,” the consultancy says.
“We believe that the two Davids have talent and receive good support from the wider team at Kames. This is a relatively new fund but so far the managers have delivered what they have promised.”
The fund has returned 8.51 per cent over the past three years, three percentage points less than the sector but it has also scored highly for maximum drawdown and volatility.
Performance of fund and sector over 3yrs
Source: FE Analytics
The fund is has an OCF of 0.85 per cent.
Newton Real Return
FE Alpha Manager Iain Stewart heads up this £9bn fund, which is the second largest in the sector after GARS. Square Mile gives the fund an ‘AA’ rating.
Square Mile notes that Stewart, who has managed the fund since 2004, is a veteran investor who has worked at Newton for over 25 years, managing both multi-asset and global equity mandates.
“The key attractions of this fund are the established Newton Global Thematic approach that is at the core of the process, combined with the experience of Mr Stewart,” it says.
“We think this is an appealing option for investors seeking a fund that is focused on capital preservation and delivering positive absolute returns over the long term.”
It has returned 89.36 per cent over the past decade compared to a sector average of 44.71 per cent.
Performance of fund, sector and index over 10yrs
Source: FE Analytics
The fund has one of the higher equity weightings in the sector – 63 per cent – split across Europe, US, UK, Japan and Asia Pacific with 14.5 per cent in cash and 15 per cent in fixed interest. Alternatives make up just 2 per cent.
The fund has an OCF of 1.11 per cent.
Schroder UK Absolute Target
FE Alpha Manager Steve Cordell heads up this £400m fund, having previously co-managed it alongside another FE Alpha Manager Julie Dean, who left Schroders in September to join Sanditon.
Square Mile says the business cycle process which the fund uses has been well tested over a number of market cycles. It gives the fund an ‘A’ rating.
“The application of the approach to an absolute return strategy has been less thoroughly tested, but we feel that the process should lend itself well to such a strategy.”
Since the pair took over the fund in 2011 it has returned 7.36 per cent compared to a sector average of 9.59 per cent.
Performance of fund and sector since June 2011
Source: FE Analytics
“Whilst there have been changes to the senior management over recent years, most notably with the departure of co-manager of Julie Dean, the team does have depth and Mr Cordell has demonstrated his investment expertise for many years through his management of pan European mandates.”
The fund has an OCF of 0.91 per cent.