Have “Absolute Return” funds finally managed to achieve their objectives?

NOTE: This post is more than 12 months old, and the information contained within may no longer be accurate.

There has been coverage in the media on Crispin Odey who runs a high profile, but not significantly large, series of “absolute return funds”.

I have written on these pages before how absolute return funds have, nearly universally, failed in their attempt to generate positive returns and given the coverage of Odey’s bet on Intu and how this had succeeded I thought it would be interesting to see how absolute return funds, which we have tended to be cynical about, have achieved their objectives or otherwise.

The data (summarised here) supports that in the first quarter of 2020 of the 120 funds in the Investment Association “targeted absolute returns” sector only 23 gave a positive return over that period.

Of this 120, 28 of the funds in this sector lost the investors more than 10%.

There are some exceptions but looking at the long term performance of the sector, shown below, versus a more conventional “cautiously managed” fund (now known as Mixed Investment 0-35% Shares) the evidence is that these funds, which tend to have high fees, are not achieving their core objective.

Our view tends to be that whilst there is no formal protection offered by conventional managed portfolios, any perceived protection in absolute return funds is purely psychological and no more valuable than following our core ethos, which relies on modern portfolio theory.

Costs will frequently be lower and as both the graph and table shows over a ten year period, our scepticism of the Absolute Returns sector seem to continue to be correct.

  2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 (to end of June 2020)
Sector : IA Mixed Investment 0
35% Shares TR in GB
7.77 1.38 6.22 4.20 4.84 0.38 8.47 4.84 -3.35 8.70 -1.11
Sector : IA Targeted Absolute Return TR in GB 4.32 -1.26 3.41 6.26 2.85 2.41 1.06 3.39 -2.81 4.38 -2.02

These funds are most common in “international” or “offshore” investments, and if you are concerned you might be paying usury charges, for funds that are failing to meet their objectives please do get in touch.

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