IMA adds one year timeframe for absolute return funds

Introduced in April 2008, the sector was reviewed by the IMA last month to assess its development.

Following the rejection of several funds' applications to join the sector based on their performance, the IMA has stated a fund's returns should be considered on a 12-month basis within its main sector definition. Previously, this description was only included in a sub-note.

The latest classification states all funds should aim to deliver above zero returns in any market conditions, typically over 12 months. However, the sector will remain unmonitored as the IMA says funds not meeting their objective will be identifiable within performance tables. Funds will be entitled to remain in the sector irrespective of meeting the target.

The IMA has also decided not to sub-divide the Absolute Return sector until it has developed further, despite several fund houses calling for further breakdowns. However, it recognises sub-division may be beneficial in the long term and says volatility or risk data may be taken into account when the sector is next reviewed in a year's time.

The trade body has invited comments on the review to be submitted by 12 June. The move by the IMA follows criticism from within the industry about those absolute return funds that have failed to deliver.

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IMA Absolute Return: One year review

Data on Trustnet.com shows that only nine of the fifteen funds displaying a one year history have managed to meet the IMA’s new criteria by delivering positive returns.

The sector has slipped into negative territory over the last year with a sector average loss of -0.4 per cent over the year to 29 May 2009.

Within the sector there are significant discrepancies in the returns of individual funds with the top performer, Octopus Partner Absolute Return gaining more than 50 per cent over the last 12 months.

The second-best performer, Threadneedle Absolute Return Bond, has returned 12.5 per cent while the worst performer has dropped by more than 32 per cent during the period.

Performance of absolute return funds with 1-yr history to 29 May 2009

Fund	% 1-yr
Octopus CF Octopus Partner Absolute Return A Acc	50.8
Threadneedle Absolute Return Bond R Gr	12.5
GLG Total Return Bond Inst Acc	9.5
Baring Absolute Return Global Bond A Acc	8.6
Insight Absolute Insight Fp	1.7
Henderson Credit Alpha I Gr Acc	1.2
Stan Life Inv Global Absolute Return Strategies Ret Acc	1.0
CF Absolute Return Cautious Multi Asset A Acc	0.8
BlackRock UK Absolute Alpha Acc	0.5
Newton Absolute Intrepid SIS	-1.3
SWIP Absolute Return Bond A Acc	-2.5
Henderson Emerging Market Debt Absolute Return Inst	-3.7
Marlborough ETF Absolute Return B	-6.9
EFA Absolute Return Portfolio B Acc	-9.3
Absolute Return Sector Performance	-0.4

Source: Trustnet.com