The combination of diversification, alternative investment and active fund management strategies, aim to deliver positive returns in spite of adverse market conditions.
Although data from Trustnet indicates that the performance of nearly all the UK absolute returns funds has declined significantly in the last year, the Threadneedle Absolute Return Bond has managed to buck the trend by delivering positive returns of 9.44 per cent in the 12 months to 10 February, against the sector return of -0.64 per cent.
The fund has an investment approach that seeks to achieve positive returns independent of UK stock market price movements and economic conditions.
Quentin Fitzsimmons, co-manager of the Threadneedle Absolute Return Bond, says: "The fund has benefited, and continues to benefit from a flexible approach to investment. Through 2008 we took advantage of positions in global bond markets and short-term interest rate products as the financial crisis took hold, specifically profiting from the rally in global bond markets and decreasing interest rates."
The largest holdings in the fund are index-linked treasury holdings, and Fitzsimmons is aware that the current low rate of inflation has implications for these holdings. "It is important to note that the portfolio is well-diversified across a range of highly liquid holdings, and hence these holdings still have a small weighting in the short-dated bond portfolio. We had held a position in these securities to take advantage of particularly cheap breakevens given the near-term outlook for inflation, and we have been decreasing this weight as these prices have moved back into line."
When asked whether absolute return funds done what they promised, Fitzsimmons replies: "We have delivered a good return for our investors thus far, through maintaining the key principles of absolute return products. Although some funds in the sector have fallen by the wayside in the past year, we continue to see the ability to achieve returns regardless of broad market direction as an attractive philosophy going forward.”
Fitzsimmons believes market volatility will continue to be a challenge for the sector in 2009.
He explains: "One of the factors driving our strong performance has been our view that the financial crisis would be more severe than the broad market had been discounting for the large part. It is clear going into 2009 that financial markets are evolving very quickly, making the environment challenging, but also filled with opportunities.
"We continue to believe that absolute return products, when conducted in the right manner, remain an attractive option for global investors. We cannot speak for other fund managers, but our aim of providing relatively low risk returns in any environment is as relevant today as it has ever been," he says.
Absolute Return sector funds ranked by 1yr performance
|
Fund name |
1y (%) | 3y (%) | 5y (%) |
|---|---|---|---|
| Threadneedle Absolute Return Bond R Gr | 9.4 | 24.0 | n/a |
| SG Total Return Bond Inst Acc | 5.8 | n/a | n/a |
| Insight Absolute Insight Fp | 1.5 | n/a | n/a |
| BlackRock UK Absolute Alpha Acc | 0.2 | 26.2 | n/a |
| Marlborough ETF Absolute Return B | -0.7 | 6.8 | n/a |
| Henderson Credit Alpha I Gr Acc | -1.1 | n/a | n/a |
| Newton Absolute Intrepid SIS | -1.2 | 10.3 | 46.1 |
| SWIP Absolute Return Bond A Acc | -2.5 | n/a | n/a |
| Henderson Emerging Market Debt Absolute Return Inst | -4.0 | -3.1 | n/a |
| EFA Absolute Return Portfolio B Acc | -4.4 | n/a | n/a |
Source: Trustnet
Absolute Return sector performance 1yr
Absolute Return sector/Threadneedle Absolute Return Bond performance
Source: Financial Express Analytics
| Absolute Return funds attracting money 1-yr |
| BlackRock UK Absolute Alpha |
| Newton Absolute Intrepid |
| SWIP Absolute Return Bond |
| Threadneedle Absolute Return Bond |
| Absolute Return funds attracting money 3-mth |
| Newton Absolute Intrepid |
| Threadneedle Absolute Return Bond |
| Octopus CF Octopus Partner Absolute Return |
| Skandia IM Alternative Investments |
| SG Total Return Bond |