"The sector has seen heavy inflows, with just a small blip in October, when every sector struggled," IMA chief executive Richard Saunders says.
However, it is important to recognise the variation of funds in the sector, which have attracted investors.
Looking over the 12 months to the end of January 2010, it is Octopus Investment Partner Absolute Return, which aims to achieve a positive absolute return for investors through investment in UK equities, which returned the most to investors, but took the most risk, according to Financial Express data.
The fund returned 35 per cent at a risk level of 17.6 over the year. Three of its top ten holdings are short positions on equities – Drax Group, Randgold Resources and Lonmin – with the remaining seven long.
The least risky fund in the sector over the period was GLG’s Total Return Bond fund. It returned just 0.5 per cent to investors, at a risk of 2.2 per cent.
Performance of funds over 1-yr
Source: Financial Express Analytics
Examples of funds showing a median balance between the spread of risk and reward in the sector include Henderson Credit Alpha, S&W The Tenax, and equity-focused Clerical Medical Absolute Return.
Trustnet data meanwhile points to the three most popular funds by sales over the period. These are Newton Real Return, Threadneedle Absolute Return, and BlackRock UK Absolute Alpha.
By sector, Newton Real Return invests mostly in fixed interest and telecoms, while Threadneedle Absolute Return invests in cash derivatives and bonds. BlackRock, meanwhile, has its highest weightings in financials.
Of the three, the Newton fund returned the most to investors, but at the highest risk, with an 11.1 per cent return at a risk level of 8.1 per cent over the year. Threadneedle returned the least, with 3.3 per cent, but at a low risk level of 1.4 per cent. BlackRock’s fund returned 8 per cent at 4.6 per cent risk.
The diverse spread of investments within these funds shows how investors, while putting their money into absolute return funds, are looking across various strategies.
Diversification overall is a point stressed by Saunders, who compares developments in the market over the past two decades.
"Investors have prudently chosen wide diversification both across asset classes and geographically – in marked contrast to the previous record year of 2000," he says.
This diversification is coupled with a record year overall for net retail sales of £25.8bn - up 45 per cent above the previous best year in 2000, when net retail sales hit £17.7bn.
Source: Investment Management Association (IMA)
"UK net retail sales are steady, and there is no indication of a slow-down."