Newton Real Return, Smith and Williamson Defensive Growth and IFSL Brooks MacDonald Defensive Capital are among six absolute return funds that have always produced positive three-year rolling returns since the financial crisis, according to data from FE Trustnet.
Many absolute return funds set themselves the goal of producing positive three-year rolling returns but it is a difficult task to accomplish and the IA Targeted Absolute Return sector has often come under scrutiny because of it.
With this in mind, FE Trustnet looked at the absolute return funds that have delivered on their target and produced positive returns in all market conditions.
To do this, we took the funds in the sector and measured their three-year rolling returns at the end of each month dating back to the end of 2007, incorporating the financial crisis into the timeframe.
In total, we looked at 91 periods, the first of which was between 31/12/2007-31/12/2010 and the last being 30/06/2015-30/06/2018. The results found six absolute return funds have produced no negative returns over that timeframe.
Of the six, IFSL Brooks MacDonald Defensive Capital had the highest average performance across each of the 91 three-year rolling periods of 21.79 per cent.
Funds that had no negative months of 3yr rolling returns
Source: FE Analytics
In the most recent three-year period (to the end of June 2018) IFSL Brooks MacDonald Defensive Capital came in at second out of the six with a gain of 15.04 per cent, compared to its average IA Targeted Absolute Return peer’s 4.74 per cent.
The five FE Crown-rated fund is run by one of Brooks MacDonald’s founding directors, Jonathan Gumpel, with deputy managers Dr Niall O’Connor and Robin Eggar coming onboard in 2017.
It has £551.8m in assets under management (AUM) and an ongoing charges figure (OCF) of 0.82 per cent.
The second fund that made no negative returns in the 91 periods is the five FE Crown-rated Smith and Williamson Defensive Growth.
Its average three-year rolling return was 17.02 per cent, while its most recent three-year performance saw the fund up 16.03 per cent, making it the best performer for the latter metric out of the six.
The fund is managed by James Burns with Genevra Banszky von Ambroz listed as deputy manager.
Unlike the majority of the funds in the list, it is a reasonably small fund with £31m in AUM and has a concentrated portfolio of 48 holdings. It has an OCF of 0.80 per cent.
Up next is the giant Newton Real Return fund, which has over £9.1bn in AUM and has been run by veteran investor Iain Stewart since 2004
Its average three-year rolling return for the period studied was 14.58 per cent, while its cumulative three-year figure stood above that of its average peer at 5.91 per cent.
Analysts at Square Mile Investment Consulting and Research said that alongside the experience of Stewart, the key attraction about the fund is the use of Newton’s global thematic approach.
3yr performance of funds vs sector
Source: FE Analytics
The approach, which is used across all of Newton’s funds, involves looking at structural changes that are impacting the global economy and using these themes to select stocks.
The fund currently invests 67 per cent in return seeking assets and 33 per cent in stabilising assets and hedging positions. It has an OCF of 0.80 per cent.
A second fund run by Newton also made the list, Newton Global Dynamic Bond, which is the second-largest of the six with assets under management of nearly £2.4bn.
It has had a higher average three-year rolling return than the Newton Real Return fund of 16.24 per cent.
Cumulatively, however, over three years it was the worst performer of the six funds and had a total return of 3.53 per cent, which is less than that of the average IA Targeted absolute Return fund.
This may come as little surprise since manager Paul Brain invests almost exclusively in fixed income products. The fund yields 2.45 per cent and has a duration of 2.8 years and an OCF of 0.80 per cent.
The next fund that has not had a negative three-year rolling return in the period studied is SVS Church House Tenax Absolute Return Strategies.
Its average three-year rolling return is 15.23 per cent since the end of 2007, while its cumulative three-year return is 9.44 per cent.
The fund has five FE Crowns and has been co-managed by FE Alpha Manager Jeremy Wharton and James Mahon since its launch in 2007.
SVS Church House Tenax Absolute Return Strategies has an AUM figure of £222m and an OCF of 1.27 per cent.
3yr performance of funds vs sector
Source: FE Analytics
Finally, Castlefield Real Return is the last fund on the list and has had an average three-year rolling return of 17.14 per cent for the 91 periods studied.
Its three-year cumulative performance is 7.49 per cent, roughly 3 per cent higher than its average IA Targeted Absolute Return peer.
The fund is co-managed by founding member of Castlefield Mark Elliott alongside Simon Holman, and like the Smith and Williamson Defensive Growth fund it is a smaller fund with just short of £32m in AUM.
The portfolio, which is made up of between 55 and 65 holdings, is the most expensive of the funds looked at today and has an OCF of 1.55 per cent.
Also worthy of mention are Absolute Insight and Premier Multi-Asset Absolute Return, which only had one negative month of three-year rolling returns out of the total of 91.