the Bank of England’s base rate.
Bestinvest's Jason Hollands (pictured) says that the majority of people living in the UK are not aware of this fact.
"While around half the UK adult population now own an ISA, less than 15 per cent of these products are estimated to be invested in stocks and shares," he said. "Cash ISA savers may feel comforted by the perceived absence of risk to their capital, but when you combine the impact of low rates of interest with above-target inflation in the period since rates were slashed, the real value of these deposits has declined."
"Of course it is common sense to hold some cash savings, not least to provide for emergencies and shorter-term goals. But for long-term savings, cash is one of the worst places to park your wealth."
"Achieving a return ahead of inflation should be a core objective for long-term savings, but that has been no easy task in the current environment, where aggressive bond-buying by central banks has resulted in yields evaporating on many of the normally lower-risk income-generating assets traditionally favoured by cautious investors," he added.
However, finding an effective and most importantly "safe" short-term investment is not easy to do.
Gavin Haynes, managing director at Whitechurch, says investors who need to put their money away for a short period of time should look towards absolute return portfolios.
"Obviously, a short-term view rules out equities. Due to volatility and risk we wouldn’t advise buying equities unless an investor has a long-term view," he said.
"It means that you are more likely to look towards absolute return-style funds. It is a really diverse sector but you should look underneath the bonnets of these funds and see if their risk-reward profile suits your own," he added.
With that in mind, FE Trustnet looks at three absolute return funds that have consistently made money in differing market conditions.
Standard Life Global Absolute Return Strategies (GARS)
Haynes highlights the £16.7bn Standard Life GARS fund as one of the best funds in the IMA Absolute Return sector.
"It is the largest, but one of the most successful funds in the absolute return sector. We rate Standard Life GARS very highly as we are fans of the management team and it remains one of our core positions," he said.
Standard Life GARS has put off investors in the past due to the management team’s complex strategies. However, FE Research’s Charles Younes recently gave FE Trustnet an interview in which he broke down the fund's approach into easy-to-understand components.
The fund aims to exploit market inefficiencies through active allocation to a diverse range of market positions.
In order to do that, it uses a combination of traditional assets such as equities and fixed income, and alternative investment strategies such as advanced derivative techniques to create a diversified portfolio.
That has certainly worked so far: according to FE Analytics, the fund has made positive returns in every calendar year since its launch in 2008, resulting in total gains of 40.88 per cent.
Its benchmark – the Libor GBP 6m index – has returned 8.82 per cent in this time. As a point of reference, the Bank of England base rate is up 5.27 per cent.
Performance of fund vs indices since May 2008
Source: FE Analytics
The fund has an ongoing charges figure (OCF) of 1.59 per cent and requires a minimum investment of £500.
Newton Real Return
The next fund Haynes likes is Newton Real Return, which is headed up by FE Alpha Manager Iain Stewart.
"It is a very diversified fund and we really rate the manager, Iain Stewart, as he takes a cautious approach to investing," Haynes said.
"It is a fund that should deliver returns above inflation," he added.
Newton Real Return was launched in March 2004 and since then it has made money in every calendar year except 2011, when it only lost 0.75 per cent. Even in 2008, the fund returned more than 3 per cent.
Since its launch, Newton Real Return has returned 118.59 per cent while its Libor GBP 1m benchmark has returned 29.39 per cent. As a point of reference, the UK consumer price index (CPI) has returned 29.26 per cent over that time.
Performance of fund vs indices since Mar 2004
Source: FE Analytics
Stewart operates a diversified portfolio of equities, bonds and alternative investment strategies. He holds equities listed in the UK, US, Europe, Japan and Asia Pacific.
He holds both investment grade and high-yield debt and has call options on both the FTSE 100 and the S&P 500.
Newton Real Return has an OCF of 1.12 per cent and requires a minimum investment of £1,000.
Insight Absolute Insight
Rob Gleeson (pictured), head of FE Research, says the five crown-rated Insight Absolute Insight portfolio would be suitable for someone who wants to hit a short-term target.
"Insight Absolute Insight doesn’t take into account any of the recent rally or macroeconomic conditions and instead just tries to beat cash in a stable and repeatable way," he explained.
"Anyone who wants capital protection, who would have previously thought bonds were the answer, then Insight Absolute Insight would be a good choice," he added.
Gleeson says its management team uses a number of complex investment strategies that would be more suited to hedge funds.
One of these is its market-neutral long/short strategy, in which it tries to isolate market movements to generate the difference between a stock’s listed price and its actual price.
"Basically, you get exposure to deep and complicated investment strategies but you don’t have to do any of the work yourself," Gleeson added.
The £468.5m Insight Absolute Insight fund is run by the FE Alpha Manager duo of Sonja Uys and Reza Vishkai. It was launched in February 2007.
It is made up of five Absolute Insight funds: UK Equity Market Neutral, Currency, Credit, Emerging Market Debt and Absolute Return Equity fund.
The fund lost 0.17 per cent in 2008, but it has made money in every year since.
Since its launch, the fund has returned 33.23 per cent while its benchmark – the Libor GBP 3m index – is up 15.48 per cent.
Performance of fund vs index since Feb 2007
Source: FE Analytics
Insight Absolute Insight has an OCF of 1.32 per cent and requires a minimum investment of £5,000.
