Absolute Return: The cautious choice
The sector has come under fire for failing to match expectations, but one low-risk and easy-to-understand fund stands out.
By Mark Smith, Reporter, FE Trustnet
Friday May 18, 2012
The £352m Insight Absolute Insight
fund is one of only a handful of funds in the Absolute Return sector that has provided a low-risk, consistently positive return in a variety of market conditions, FE Trustnet
The Absolute Return sector has come under fire for failing to live up to its billing. A recent FE Trustnet
article revealed that just 38 per cent of its funds
have delivered a positive return over the last 12 months.
Many of the funds have been criticised as being little more than hedge funds, providing strategies that are too closely correlated to the ups and downs of the wider stock market.
However, a handful of funds within the sector pursue genuinely market-neutral strategies and have proved their worth over the medium-term.
According to data from FE Analytics
, the Insight Absolute Insight fund has returned 23.87 per cent over the last five years – more than double the return of the average fund in the sector.
The story is similar over three years: the fund has returned 20.06 per cent compared with 9.91 per cent from the sector average.
Performance of fund vs sector and index over 5-yrs
Source: FE Analytics
Equally impressive is that the fund has achieved these returns without presenting much risk to investors. Our data shows that its annualised volatility score over the last five years is just 2.73 per cent.
By comparison the average Absolute Return fund has a score of 3.46 per cent over the same period and the average Sterling Corporate Bond fund scores 6.59 per cent.
Insight Absolute Insight, which is headed-up by FE Alpha Manager Reza Vishkai
, is best understood as a fettered fund-of-funds comprising four separate sub-funds.
These sub-funds, managed by Insight fund managers, pursue their own absolute return strategies: Absolute Credit, Absolute Currency, Absolute Emerging Market Debt and Absolute UK Equity Market Neutral.
Vishkai manages his portfolio by adjusting his weighting to each of the core strategies, depending on where he sees opportunity and risk.
One of the qualities of this strategy compared with others in the sector is that it has little correlation to equity markets. The R2
ratio is used to measure an instrument's correlation to an index.
A measure of 1.00 means that the two instruments are exactly the same and 0.00 indicates no correlation. Our data shows the Insight fund has an R2
ratio of 0.01 to the FTSE All Share over five years.
"I’m impressed with the absolute return team at Insight," said Tim Cockerill, head of collectives research at Rowan Dartington. "But they’ve never really been out to the retail market to push their funds."
"They are one of the few managers in the space to run genuinely market-neutral strategies to achieve what most people understand an Absolute Return fund to do."