Funds in the IA Targeted Absolute Return sector reaching their three-year anniversary during the first half of 2018 have enjoyed mixed performance, according to research by FE Trustnet.
In the third article of a series looking at the funds that are now coming up to or have just passed their three-year anniversary, FE Trustnet found some funds had performed better than others.
Previously, FE Trustnet explored the risk-on multi-asset sectors and the risk-off multi-asset sectors.
This week, we turn to the IA Targeted Absolute Return sector, which has been the third worst-performing sector in the Investment Association during the past three years.
This is not necessarily surprising since absolute return funds do not aim to outperform all markets, rather they look to provide a positive return in all market conditions.
Below FE Trustnet takes a closer look at L&G Multi-Asset Target Return, Hermes Absolute Return Credit, BlackRock Emerging Markets Absolute Alpha and Threadneedle Global Opportunities Bond and how they have performed on their third anniversary.
Please note, all since launch performance figures in this article are run to the end of May 2018.
L&G Multi-Asset Target Return
The first fund in the study is the L&G Multi-Asset Target Return fund – the only fund of the four launched during the first half of 2015 that has produced returns that are superior to its average peer since its inception.
However, it must be noted that comparisons within the IA Targeted Absolute Return sector are not always appropriate because of the different objectives, asset classes, benchmarks, timeframes and risk characteristics of the constituent funds.
The fund has produced a total return of 9.97 per cent since its launch in March 2015, while its average peer in the IA Targeted Absolute Return sector saw returns of 4.64 per cent.
Performance of fund vs sector since launch
Source: FE Analytics
The aim of the fund is to produce a three-year rolling return 5 per cent higher than the Bank of England base rate before charges are deducted and assuming all income is reinvested but the fund does not have enough performance history to determine whether this has been done successfully yet.
L&G Multi-Asset Target Return has been managed by the asset allocation team at Legal & General Investment Management (LGIM) since its inception, who incorporate macroeconomic research into their investment strategy.
While it makes use of short positions, the fund tries to manage its volatility, which has been on average 4.51 per cent.
If you compare this volatility figure to the fund’s average peer, it is more than double the sector average.
Of the four funds studied in this list it is the largest with assets under management (AUM) of £461m, the majority of which has flowed into the fund during the past year.
L&G Multi-Asset Target Return has an ongoing charges figure (OCF) of 0.67 per cent.
Hermes Absolute Return Credit
The next absolute return which launched in the first six months of 2015 that FE Trustnet will look at is the Hermes Absolute Return Credit fund.
Hermes Absolute Return Credit aims to produce a positive absolute return over 12-month rolling periods and uses both long and short strategies. Over three years it has produced a positive total return of 2.82 per cent since its launch in May 2015.
In the same period, the fund’s average peer in the IA Targeted Absolute Return sector saw returns of 4.40 per cent.
Performance of fund vs sector since launch
Source: FE Analytics
However, one thing to note is that investing in this fund has given you a smooth ride. Average volatility since launch is 1.12 per cent.
It has been managed by Fraser Lundie since inception, who is co-head of credit at Hermes and runs two other credit mandates at the fund group.
Hermes Absolute Return Credit has an AUM figure of £131m and an OCF of 0.81 per cent.
BlackRock Emerging Markets Absolute Alpha
BlackRock Emerging Markets Absolute Alpha is the third fund in the list and the only one to have a regional bias, in this case towards emerging markets.
The fund’s aim is to produce 12-month absolute returns and focuses on equities or equity-related securities.
Figures from FE Analytics show that BlackRock Emerging Markets Absolute Alpha has recorded a loss of 1.34 per cent since its launch in February 2015 while its average peer has returned 5.47 per cent.
A large part of this loss came in 2017, a particularly bad year for the fund which saw the fund lose more than 9 per cent.
Performance of fund vs sector since launch
Source: FE Analytics
Average volatility sits at 7.77 per cent since launch, which is more than 5 per cent above the sector average.
Overseeing the smallest of the four funds in the list with an AUM figure of £5.5m are managers Sam Vecht and Gordon Fraser.
On top of its OCF of 1.23 per cent, BlackRock Emerging Markets Absolute Alpha has a performance fee of 20 per cent of returns above the LIBOR 3-Month index.
Threadneedle Global Opportunities Bond
The worst performing IA Targeted Absolute Return fund just now attaining its three-year track record is the Threadneedle Global Opportunities fund.
It launched in February 2015 and has made a loss of 9.06 per cent since this time, heavily underperforming its average peer in the IA Targeted Absolute Return sector, which saw returns of 5.34 per cent.
Most of this loss was endured before current manager Adrian Hilton took over the mandate in October 2016.
However, Hilton has still seen losses of 3.09 per cent during his tenure, which is more than 6 per cent less than his average peer and the fund has been bottom quartile since its inception.
The fund’s objective to make a positive absolute return on a 12-month rolling basis has not been fulfilled.
Performance of fund vs sector since launch
Source: FE Analytics
The £60m fund has a target volatility of 9 per cent, which it has managed to keep well below, averaging 3.41 per cent since inception.
Threadneedle Global Opportunities has an OCF of 0.81 per cent and an initial charge of 3 per cent.