There has been increasing speculation that the Investment Management Association (IMA) will kick out funds that do not adhere to the sector regulations and deliver absolute returns on a 12 months basis. However, talks are in progress to increase the time period to three years, which will benefit a number of funds.
According to Financial Express data, Octopus Absolute UK Equity is the worst performing fund in the entire IMA Absolute Return sector over one year, losing investors 9.54 per cent. The fund has received a lot of negative press as a result of this statistic, with some commentators arguing that funds such as this are giving the sector a bad name.
Performance of fund vs sector over 1-yr
Source: Financial Express Analytics
But since the fund was launched in March 2008, it has been by far the best performer overall, with returns of nearly 60.97 per cent, outperforming its sector average by more than 50 per cent.
Source: Financial Express Analytics
Another option on the table is splitting the sector in two, between funds that aim to achieve positive returns over one year and three year periods. Fund managers in the latter group would be given licence to run their fund with a greater risk allowance, as losses over one year would be accepted, so long as positive returns were attained in the medium term.
Octopus’ chief investment officer Lothar Mentel has spoken to Trustnet on several occasions about the IMA pitting funds against each other with contrasting objectives.
While Mentel advocates a three-tier bucket system, which would separate funds according to how much loss they were willing to risk each year, a spokesperson for Octopus said that he would welcome any categorisation that took risk levels into account.
RWC Cautious Absolute Rate & Currency would also be boosted by the proposed changes. The fund has lost investors 2.76 per cent in the last year, but has made positive returns of 20.54 per cent over three years, making it the seventh best performing fund in the sector.