The worst performers are all multi-asset funds, with 10 such portfolios having lost money over 12 months.
While CF Odey Absolute Return, which has significant bond exposure, is the best-performing fund over a year, the next six funds are pure long/short equity portfolios, raising the question of whether investors are overlooking a useful strategy to hold in their portfolio.
CF Odey Absolute Return, managed by James Hanbury and Jamie Grimston, has returned 47.99 per cent over the past year, according to our data, while the FTSE All Share has made 23.64 per cent.
Performance of fund vs sector and index over 1yr
Source: FE Analytics
The fund has a short position in government bonds, worth 67.66 per cent of NAV, but focuses on equities otherwise.
The next best performer is City Financial UK Equity, managed by David Crawford, a £33.5m portfolio that has made 24.97 per cent over the past year.
Performance of funds over 1yr
| Name | 1yr returns (%) |
Rank |
|---|---|---|
| CF Odey Absolute Return | 47.99 | 1 |
| City Financial UK Equity | 24.97 | 2 |
| Henderson - European Absolute Return | 19.17 | 3 |
| Cazenove Absolute UK Dynamic | 16.99 | 4 |
| Henderson - UK Absolute Return | 14.56 | 5 |
| GLG Alpha Select Alternative | 14.35 | 6 |
| RWC Europe Absolute Alpha | 13.69 | 7 |
| RWC US Absolute Alpha | 13.14 | 8 |
| Old Mutual Global Equity Absolute Return |
12.65 | 9 |
| WAY Absolute Return Portfolio | 12.46 | 10 |
Source: FE Analytics
Crawford’s fund is entirely long/short equity, albeit with a large short on the FTSE 100 as its single biggest position.
It also recently sold out of a significant position in gold, worth more than 9 per cent of the fund, at a substantial profit.
Henderson European Absolute Return, managed by FE Alpha Manager John Bennett, is the third best-performer, although it amounts to only £7.7m in size.
It invests in European and UK shares and is currently 71 per cent long and 23 per cent short.
The rest of the top nine funds are long/short strategies, including the soft-closed Cazenove Absolute UK Dynamic.
WAY Absolute Return Portfolio, in 10th, is a fund of investment trusts, so in a certain sense it is also an equity fund.
However, it invests in trusts that buy debt and hedge funds as well as equity trusts, and it is through the underlying portfolios that the short positions come into the fund.
The unusual nature of the WAY fund underlines the diversity of structures in its sector, which makes it hard to make comparisons.
All funds in the sector must target absolute returns in all market conditions, but have a wide remit as to the methods they use, and even the timeframe over which they are to be judged.
Investors often buy into the sector to try to find uncorrelated funds that can help to protect their portfolio when the market falls.
Long/short funds might be expected to offer less in that respect.
However, our data shows that with one exception – Henderson UK Absolute Return – all have a correlation that is considered low to equities, taken as the FTSE All Share.
Correlation of funds to FTSE All Share over 3yrs
| Name | Correlation to FTSE All Share |
|---|---|
| Cazenove Absolute UK Dynamic | 0.34 |
| CF Odey Absolute Return | 0.68 |
| City Financial UK Equity | 0.07 |
| GLG Alpha Select Alternative | 0.51 |
| Henderson European Absolute Return | 0.57 |
| Henderson UK Absolute Return | 0.81 |
| Old Mutual Global Equity Absolute Return | -0.12 |
| RWC Europe Absolute Alpha | n/a |
| RWC US Absolute Alpha | 0.38 |
| WAY Absolute Return Portfolio | n/a |
Source: FE Analytics
City Financial UK Equity has a correlation of just 0.07 over that period, while Old Mutual Global Equity Absolute Return has a slight negative correlation of -0.12.
One way of measuring how successful funds are in all conditions is looking at calendar year performance.
It is in this area that long/short funds might look more dubious.
Of the funds examined above, only soft-closed Cazenove Absolute UK Dynamic and CF Odey Absolute Return have produced positive returns in all years since launch, and the latter is the most volatile fund in the sector over three years.
However, most of the losses are very small, and only RWC US Absolute Alpha has lost money in more than one calendar year.
Standard Life Global Absolute Return Strategies takes a very different approach to the long/short equity funds.
It uses a multi-asset approach that uses currencies, bonds and other assets to generate returns. In an earlier article, FE Trustnet looked at precisely how it does this.
The fund is now, at £17.8bn, the largest UK retail fund, and while IMA sales figures appear to show an uptick in interest in the sector in recent months, our data suggests that GARS is responsible for the vast majority of inflows.
According to the IMA, the sector as a whole saw £225m net sales in May, the last month for which it has data.
While we cannot isolate flows data for particular months, over the past three months, Standard Life Global Absolute Return Strategies has seen net inflows of approximately £1bn, corresponding to an average monthly take of £333m.
BlackRock UK Absolute Alpha and Jupiter Absolute Return – two funds that have recently lost a manager – saw outflows of over £130m between them.
GARS has had a disappointing few months, however, losing 5.47 per cent when the FTSE All Share sold off on 22 May, and is yet to fully recover.
Performance of fund vs equities since 22 May
Source: FE Analytics
In general, data from FE Analytics shows that funds in the targeted absolute return sector have held up well in the market wobble since May, as we saw in a recent article.
While GARS continues to dominate sales lists, our research suggests long/short equity funds could also be worth considering in client portfolios.
