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Jury out on absolute return funds

Jury out on absolute return funds

Category: Investments

Updated: 16/07/2009
First Published: 15/07/2009

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

A survey from Investment Life & Pensions Moneyfacts has raised concerns over whether absolute return funds have been delivering on their promise to produce positive returns each year.

Although the survey found that the average absolute return fund has delivered positive growth in each of the last three years, there are a worrying number of funds that have fallen short of their objectives.

Only 12 of the 20 funds with at least a one year history are in positive territory with regards to their underlying performance over that time, while the number drops to just eight when charges are taken into account.

Of considerable concern, however, will be the extent to which some of the funds have missed their goal. Those entrusting £1,000 into the worst performing absolute return fund a year ago will have seen their investment slump in value to £819.

Despite notable disappointments, there are still some encouraging signs for the absolute return sector. The undoubted success story of the sector is the CF Octopus Partner (Absolute Return) fund having posted growth of 51.74 per cent, or a return of £1,442 on a £1,000 investment made a year earlier, taking into account the impact of charges. It is also the second best performing unit trust/OEIC fund overall over the last 12 months, second only to Neptune's Japan Opportunities fund.

Meanwhile, in terms of the sector overall, an average return of 2.74 per cent (without charges) means absolute return is the third best performing sector of the past year, comparing favourably with an average 15 per cent loss across all funds.

Richard Eagling, Editor of Investment Life & Pensions Moneyfacts, said: "With many funds still in their infancy, it is perhaps too early and a little unfair to pass a conclusive judgement on many of the funds.

"It is also worth bearing in mind is that no investment vehicle can guarantee a positive return. However, given this is the overriding aim of all absolute return funds, that so many have fallen so far short of the mark is somewhat of a surprise."

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