Premier Multi-Asset Absolute Return, Old Mutual Global Equity Absolute Return and Threadneedle UK Absolute Alpha are some the absolute return funds in the Investment Association universe to have best coped with market volatility over the last three years, according to data from FE Analytics.
Markets have been particularly choppy since 2013, thanks to a combination of headwinds including the Taper Tantrum, global growth slowdown, the collapse in oil and commodity prices and increased geopolitical uncertainty.
Over the last three years, in fact, investors could have lost more than 10 per cent of their capital at any one point if they’d bought into and sold the MSCI AC World index at the worst possible time, as measured by its maximum drawdown.
Performance of index over 3yrs
Source: FE Analytics
This volatility may well have led investors to buy into absolute return funds, which often aim to achieve returns higher than the rate of inflation over rolling medium to long-term periods regardless of market conditions.
Over the last year, the most popular absolute return fund – Invesco Perpetual Global Targeted Returns – has more than tripled in size and now has an AUM of £5.7bn. In second place, the behemoth Standard Life GARS fund has continued to balloon, having increased from £25.4bn to £26.4bn in size over the last 12 months.
The sector was also the most popular market area within the Investment Association universe during May this year, which is the most recent data released by the company.
The funds are not without their critics though. In an article published in March, Hargreaves Lansdown’s Mark Dampier told FE Trustnet that many funds such as GARS are too complex to analyse properly for most people, given that they often adopt several complex investment processes simultaneously.
“[GARS has] got a lot of money and they’ve put a lot of money in it, but from our point of view, I’d have to question that if it went wrong, would we understand why it has gone wrong? That’s what bothers me.”
Which absolute return funds have lived up to their names over the last three years and have genuinely provided the most consistent positive returns?
FE Trustnet has taken a look at the number of positive returns on a monthly basis over this time frame and has found that, boasting 27 positive monthly returns out of 36, Premier Multi-Asset Absolute Return has taken the top spot.
The four crown-rated fund is headed up by David Hambidge, Ian Rees, David Thornton and Simon Evan-Cook and aims to generate positive returns over rolling three-year periods.
The £116.7m fund is benchmarked against the Libor GBP 3m index, which it has outperformed during five out of seven years since it was launched to the end of 2005.
In terms of its total return, it has outperformed its benchmark by 30.87 percentage points since its launch with a total return of 55.19 per cent.
Performance of fund vs benchmark since launch
Source: FE Analytics
The fund’s portfolio is diversified by categorising investments in terms of their economy sensitivity rather than their asset class. It also invests predominantly in the likes of zero dividend preference shares, synthetic zeros and defensive autocalls rather than bonds and stocks. This means that the fund is less likely to be swayed by stock market returns or changes to interest rates.
Since launch, the fund’s maximum drawdown is 3.8 per cent and it has an FE Risk Score of 15, which predicts that the fund is just 15 per cent as risky as buying into the FTSE 100 index.
The fund with the second-highest number of monthly positive returns over the last three years is another Premier offering – its Defensive Growth fund has five FE crowns and has achieved 26 positive periods out of 36.
It was launched by Paul Smith in 2010 and, over this time frame, the fund has returned 19.77 per cent compared to its LIBOR GBP 3 Months benchmark’s return of 3.67 per cent.
Premier Defensive Growth, which has an FE Risk Score of eight, had its objective changed in April this year and now aims to generate positive returns on a rolling 36-month basis.
It also aims to deliver significantly lower volatility than the global stock market, as measured by the FTSE All World index. Over three years, the fund has achieved an annualised volatility that is less than one-sixth as high as that of its index.
The next six funds on the list have all achieved 25 positive monthly periods out of the last 36 months – these are Threadneedle UK Absolute Alpha, Threadneedle Credit Opportunities, City Financial Absolute Equity, GAM Star (Lux) European Alpha and Carmignac Portfolio Capital Plus.
Performance of funds over 3yrs
Source: FE Analytics
Threadneedle UK Absolute Alpha, which is managed by Chris Kinder and Mark Westwood, has five FE crowns and is £1.1bn in size. It aims to provide a positive return over a rolling 12 month period regardless of market conditions and at least two-thirds of its assets will be in long or short positions in UK companies.
As the name suggests, Threadneedle Credit Opportunities hold at least two-thirds of its portfolio in long or short positions in bonds issued by either governments or companies.
It aims to provide a positive return over a rolling 18 to 24 month time frame regardless of market conditions and is also able to hold derivatives in order to achieve this aim.
The three crown-rated fund is headed up by Barrie Whitman, Alasdair Ross and Michael Poole and has an FE Risk Score 16.
While the former has a maximum drawdown of 1.59 per cent over three years, the latter fund has a maximum drawdown of 3.33 per cent.
Moving down the list, the absolute return funds that have achieved 24 positive months over the last three years are Absolute Insight Credit, BlackRock European Absolute Alpha, Henderson UK Absolute Return, CF Odey Absolute Return, Insight Global Absolute Return and Schroder Absolute UK Dynamic.
Table of 10 absolute return funds with most positive months over 3yrs
