A recent FE Trustnet study found that 66 per cent of funds in the IA Targeted Absolute Return sector failed to make a positive return during the FTSE 100’s 20 per cent fall.
These included some of the largest and most well-known in the peer group such as the £26.7bn Standard Life GARS, £9.1bn Newton Real Return and £4.3bn Invesco Perpetual Global Targeted Returns funds – which lost a respective 4.27 per cent, 4.39 per cent and 2.8 per cent.
While some may well be frustrated at those losses from what many perceive to be their ultra-cautious funds, Hargreaves Lansdown’s Mark Dampier told FE Trustnet that investors need to realise no manager can continuously make money irrespective of market conditions.
That being said, there were funds that flourished during the period in question (since April 2015) – a timeframe that includes significant volatility in other asset classes such as bonds.
The large majority of those, however, were funds that focus purely on equities via a long/short strategy.
The best example has been David Crawford’s City Financial Absolute Equity fund, which has made a hefty 26.33 per cent since the FTSE 100’s peak. As the graph below shows, it means the £245m fund has beaten the index by some 43 percentage points over that time.
Performance of fund versus index during since April 2015
Source: FE Analytics
There is little doubt that Crawford has benefitted from his short book, but it has been his ability to take advantage of growing stock dispersions that has been the driver of his outperformance – rather than just shorting the market as a whole.
“We would say, because the market is pretty bullish, there is more opportunity on the short side as some companies aren’t as good as the market thinks they are,” Crawford said in May last year.
For example, the manager has been shorting commodity-related stocks for most of the past 12 months, which has turned out to be the correct call, but has kept long positions in rallying mid-caps. While the fund was net short the market as of last year, Crawford says he has used the 2016’s torrid start to add to his long book.
Though City Financial Absolute Equity has been the best performer, the long/short equity approach has undoubtedly worked well for most in the recent market environment.
According to FE Analytics, 11 of the 15 best performing portfolios in the IA Targeted Absolute Return sector are long/short portfolios with the likes of Polar Capital UK Absolute Equity, TM Cartesian UK Absolute Alpha and FP Argonaut Absolute Return all returning 17.93 per cent, 7.27 per cent and 5.19 per cent respectively.
Top 15 performing absolute return funds during the FTSE’s bear market
Source: FE Analytics
On the other hand, the funds that tended to fare worst were those investing across a broad range of assets in an attempt to deliver positive returns.
These global macro funds don’t only include the sector’s behemoths though, as CF Eclectica Absolute Macro, Baring Multi Asset and Insight Global Absolute Return have all posted losses of more than 9 per cent since April last year.
There are some which have proved their worth though, but still go largely under the radar of most investors. In fact, there are three in particular which have made a name for themselves during this correction.
First up is the JPM Multi-Asset Macro fund, which has returned 4.98 per cent.
While the £116m fund – which is co-managed James Elliot, Shrenick Shah and Talib Sheikh – has had a higher maximum drawdown than most in the peer group over that time, it has had the fifth highest risk-adjusted returns as shown by its Sharpe ratio. 
Elliott recently told FE Trustnet how he and the JPM Multi-Asset Macro team were planning to navigate what is likely to be a volatile rest of the year.
“Due to very rich valuations, fixed income is effectively stuck and no longer providing balanced investors with diversification relative to equities,” Elliot (pictured) said.
“Investors seeking both returns and true diversification will need to seek market return strategies beyond a traditional balanced portfolio, tapping into areas such as derivatives, currency trades and volatility trades.”
Currently, the fund has 34.1 per cent in equities, 32 per cent in ‘advanced derivative strategies, 19.6 per cent in currencies and 14.3 per cent in fixed income.
Since launch in February 2013, JPM Multi-Asset Macro has returned 34.12 per cent while the Barclays Sterling Gilts index and FTSE 100 have retuned 16.45 per cent and 1.36 per cent respectively.
Performance of fund versus indices since launch
Source: FE Analytics
As a result, it has been one of the sector’s best total return performers over that time although it has posted larger drawdowns than most.
Another relatively unknown fund to have come into its own recently is James Clunie’s Jupiter Absolute Return portfolio, having ground out a 4.95 per cent gain since April 2015.
Clunie moved to the group in 2013 from SWIP and, while he takes long/short equity positions, he invests across a variety of assets such as bonds, commodities and currencies.
Again, while the fund has tended to be more volatile than its average peer, Clunie has attracted some notable backers over his tenure thanks to his stock-picking skills and so far correct market calls.
One of those is the team at Hawksmoor, who pointed out to FE Trustnet that Jupiter Absolute Return was one of the major reasons they weren’t hit too hard during last August’s significant correction.
“Clunie had been reading the market extremely well and introduced a position which was a short on the Chinese currency,” Hawksmoor’s Daniel Lockyer explained.
“It shows he was taking a contrarian view. It was so contrarian that we spoke to somebody in the Hong Kong office at Fidelity just before the market set-back and he said there was no chance that the Chinese would devalue.”
“The reason Clunie was able to put that position on was because that view was commonplace and no one expected that to happen. He could put it on relatively cheaply and the returns it has generated have been very good.”
“Who knows, they may be some more devaluation ahead but it is something we are glad to have exposure to, to offset that potential situation.”
A fans’ favourite on this website, Aviva Investors Multi-Strategy Target Income, is among those global macro funds to eke out a positive return during the FTSE’s bear market – though with a return of 0.31 per cent it’s further down the performance table than the aforementioned portfolios.
The fund was set up Aviva Investors chief executive Euan Munro, who was previously a senior member of the Standard Life GARS team, and is run by Brendan Walsh, Ian Pizer, Peter Fitzgerald and FE Alpha Manager Nicholas Samouilhan.
Since its launch in December 2014, Aviva Investors Multi-Strategy Target Income – which yields 4.28 per cent – has outperformed both Standard Life GARS and Invesco Perpetual Global Targeted Returns (which was also set up by ex-GARS members) with gains of 6.09 per cent.
Performance of funds since December 2014
Source: FE Analytics
It has also delivered a better maximum drawdown, annualised volatility and Sharpe ratio over that time.
