Lyttleton, who co-manages the BlackRock UK Absolute Alpha fund, said absolute return funds can help a portfolio, although he accepts that there is some risk.
"It is very easy to launch an absolute return fund and say it is absolute return, but it is very hard to deliver that promise. Funds operate in different ways and therefore investors are going to get variation in returns.
"The risk is there are one or two high profile blow ups in this sector that ruin it for the other funds. Some people are saying that the sector needs to be split but I do not think it matters, you just need to know what you are investing in."
Data from Financial Express shows that there are 50 funds in the IMA Absolute Return Sector. Over the last 12 months to 13 September 2010, the funds have produced a mixture of results in terms of returns, with the highest performing fund returning 33.56 per cent and the lowest performing fund making a loss of 20.4 per cent. The top five performing funds in the absolute return sector can be seen in the chart below:
Source: Financial Express Analytics
Trustnet Alpha Manager, Bill McQuaker, who is head of equities at Henderson, said the reason that absolute return funds struggled in the last year could be down to correlations.
"This is a funny world, if you look at internals of correlations around the world these are very high. This means it is a tough world for managers running long/short strategies. This could be why some absolute return funds have struggled, the return generating opportunity is just not there and the risk side to the equation has become very powerful indeed," he said.
However, Luke Newman, co-manager of the Gartmore UK Absolute Return fund disagrees and said they had managed to make returns.
"There are ways to generate absolute return in the current market. We have a long term book of buy and sell ideas. The UK is full of a lot of mature companies and when we have seen volatile markets we have been able to produce consistent returns," he said.
Commenting on whether or not investors understood absolute returns, Lyttleton said he thinks the level of understanding is improving.
"We are getting there, after years of going on the road to explain absolute return I think investors are starting to understand it," he said.
"Entrusting your money to a strategy you do not understand is very risky unless you are confident in the fund manager."
Judging from the latest sales trends from independent platform confounds, investors are definitely taking an increased interest in absolute return funds.
Absolute Return accounted for 7 per cent of net sales and 5 per cent of gross sales in August, with Standard Life Investment Global Absolute Return Strategy fund leading the way as the top selling fund on the platform for both net and gross sales Michelle Woodburn, manager, fund group relations at Cofunds said.
"Absolute Return has seen a gradual organic increase in advisers' favour with steady growth indicating that this is not a bubble of popularity. As one of the newer sectors, Absolute Return does not have the legacy of assets to lose which some other sectors do, so maintains impressive net as well as gross sales."