Insight masters the art of absolute return
The FE five crown-rated Insight Absolute Insight portfolio is one of only two in the sector to break even in each of the last four calendar years.
Absolute return is a term that has been bandied around by a number of fund houses. Even some pure equity funds have said they have an "absolute return" objective; however, severe losses in 2008 and 2012 have shown that in many cases the term needs to be taken with a pinch of salt.
Many funds in the IMA Absolute Return sector itself are far from achieving an absolute return, even over three years.
According to FE data, seven of the 36 funds in the sector – or 19 per cent – have lost money over the period.
These include the SVM UK Absolute Alpha
and CF Octopus Absolute UK Equity
portfolios, which are down 20.32 and 7.37 per cent respectively. Both are long/short equity funds.
The Octopus portfolio has an annualised volatility of 13.66 per cent – only 1.52 per cent less than the FTSE All Share index.
There are, however, some funds that have been able to deliver an absolute return with minimal volatility. In recent years, none have done so more effectively than the £341m Insight Absolute Insight
fund, headed up by FE Alpha Manager Reza Vishkai
and co-manager Sonja Uys.
Performance of funds vs sector over 3-yrs
Source: FE Analytics
According to FE data, it is one of only two funds to break even in every calendar year between 2008 and 2011. The other – Insight Absolute UK Equity Market Neutral – has a 23.9 per cent weighting in Vishkai’s portfolio.
Insight Absolute Insight
has comfortably beaten cash and the average Absolute Return fund since its launch in February 2008, and with an annualised volatility of just 2.98 per cent over three years, it is among the five most stable funds in the sector.
Only RWC Cautious Absolute Rate & Currency has a lower max drawdown since the Insight fund's launch, and none have a lower max loss than its 1.69 per cent.
Insight Absolute Insight holds five in-house portfolios, or strategies as the managers prefer to call them: Insight Absolute UK Equity Market Neutral, Insight Absolute Currency, Insight Absolute Credit, Insight Absolute Emerging Market Debt and Insight Absolute Return Equity.
The first four tend to have a similar weighting in the portfolio – currently between 20 and 24 per cent – with the rest in the Absolute Return Equity fund.
Speaking to FE Trustnet
, Uys said: "This is a low-risk structural solution for investors who want a true absolute return."
"The five different portfolios are non-overlapping. We don’t try and be too strategically clever as we trust the managers of each strategy to make their own asset-allocation decisions."
"However, we are in constant contact with the managers and so know where they are positioned."
Uys says the team's approach to risk is different to the way many other groups see it.
"Here at Insight we look at risk more realistically than just looking at volatility," she explained. "Volatility is certainly one factor, but there’s also exposure to certain asset classes, max drawdown, max loss and so-on."
With regard to some of the fund’s riskier rivals in the sector, she said: "I understand that the IMA are in talks about splitting the sector."
"I think time horizon is the key here; if a fund says they are targeting an absolute return over three years, they shouldn’t be criticised for failing over 12 months."
"It all comes down to the fund manager’s objective."
"Like anything, you’ve got to look under the bonnet because there is so much diversity in the sector."
Insight Absolute Insight attempts to deliver an absolute return over a rolling 12-month period and outperform cash by 3 to 5 per cent during this time, net of fees.
The portfolio, which has five FE crowns, has a total expense ratio (TER) of 1.26 per cent and a minimum investment of £5,000.
Investors can directly access all five of the underlying funds if they wish.