Based on FE Analytics data, over one year, the top performing Newton Managed Targeted Return Fund generated a return of 12.45%, while the Argonaut Absolute Return Fund brought up the rear losing 17.78% over the same period. At the same time, some of the behemoths of the sector, funds like Standard Life Investments Global Absolute Return Strategy and Aviva’s Multi Strategy Target Return fund have also produced negative returns.
For James Beaumont, international head of Natixis Global Asset Management’s portfolio research & consulting group it is too soon to know whether or not the moves seen in the third quarter are part of a broader trend, but he added, in previous editions of the Portfolio Barometer the firm did flag up the growth of the opposite trend – a growing shift out of fixed income, especially sovereign debt, into alternatives – as something to watch. Such a shift changes the nature of a portfolio because fundamentally, fixed income and alternatives do not behave in the same way, he said.
“One of the reasons why some managers made the shift was because they were worried about duration risk. And, in that instance, they would have lost out in two ways this year. Not only did the sector they moved into fail to perform as well as hoped, the asset class they moved out of did better than expected,” he said.
That is not to say that the move was an incorrect one, however, rather that if one was hoping for an exact replacement for a gilt allocation, absolute return has not been great choice.
The danger that lurks among the disapointment with absolute return funds year-to-date is that, having been let down, asset allocators might eschew the sector entirely over the longer term, further limiting their tool set in a world where complexity and uncertainty are only going to increase from here.
