This is partly as all the big providers are busy putting their ducks in a row given the announcement last week of ‘son of GARS’ from Invesco Perpetual, a multi-asset, multi-strategy hedge fund-like proposition.
Progress?
On the same day last week, I heard five different absolute return fund managers at two separate conferences explain how their strategy and approach are different to everyone else’s; the week before I heard from Ian Winship, manager of BlackRock’s Absolute Return Fund; and later this week, at Portfolio Adviser Congress (our inaugural, residential wealth manager conference being held in Benahavís, Spain) I will get the chance to listen to David Millar, one of the three senior managers who left Standard Life for Invesco Perpetual to run the aforementioned product.
One thing this shows quite clearly is how the absolute return strategies have progressed. They have certainly moved on from the long/short UK equity-based strategies kicked off by Mark Lyttleton’s BlackRock UK Absolute Alpha Fund in April 2005.
After the much publicised details of its original manager Mark Lyttleton’s fall from grace, this fund is still going through the wringer, losing investors close to 7% in 2011, staying just about positive (up 0.5%) in 2012 and down 2.2% year-to-date so far in 2013.
Earlier this year, when Lyttleton was headline news for all the wrong reasons, the attention it brought to the sector showed that there were plenty of funds that had not lived up to their billing of providing positive returns across all market conditions – the bare minimum requirement of an absolute return fund.
But, back to the progression of their design, the next iteration was to multi-asset, multi-strategy propositions (GARS, son-of-GARS etc), with the latest move being into global fixed income absolute return funds and then regional (emerging market debt) fixed income structures.
Yet the sum total of all this innovation, with products designed by some of the brightest brains in the industry, is a correlation with equities of nearly 90%.
Commenting on this, Stephen Snowden, manager of the Kames Absolute Return Bond Fund, said investors might as well stick 70% in equities and 30% in cash to get the same result. It’s probably cheaper doing this as well.
Investor demand
That may be a sweeping generalisation but it is also the only conclusion you can reach if you look at the collection of absolute return funds in the IMA Target Return sector (see graph below, courtesy of Kames Capital).
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The demand is still there, with 25% of wealth managers at last week’s Portfolio Adviser Expert Investor Alternatives event saying they already have exposure to absolute return bond funds, with 25% also saying they are considering an increase to this allocation.
Having heard all the fund managers present their ideas (including absolute return bond strategies from Dan Beharall at Ignis and Pioneer Investment’s David Greene) 33% are considering upping their exposure to absolute return strategies of any hue.
There are still plenty of portfolio managers who have to hold fixed income because of a particular index they follow, so absolute return funds could be a ‘safe’ way to get this exposure. But, as Beharall said when directly asked whether his fund is a fixed income fund or an absolute return fund: “It’s up to the investors.”
